CVA
Is a CVA (Company Voluntary Arrangement) the right choice for you?
Do you understand the implications of a CVA? If your business is struggling you may have considered moving forward with a Company Voluntary Arrangement (CVA), this is often a suitable choice for Dire ...

Do you understand the implications of a CVA?

If your business is struggling you may have considered moving forward with a Company Voluntary Arrangement (CVA), this is often a suitable choice for Directors and can help a business get out of a sticky situation but sometimes it may not be the best choice for you.

Therefore it is important that you understand all of the implications that come with a CVA and the likely consequences that may affect your future trading capability.

Disadvantages of a CVA…

  • Creditors/ suppliers may begin to require cash upfront
  • Some suppliers may try to increase their prices, or re-negotiate credit terms voiding previous agreed discounts in an attempt to regain debts owed to them.
  • A creditor owed 25% or more of the debt may be able to dictate terms limiting what may be available to you
  • It effects the company’s credit rating
  • It does not bind secured lenders
  • A CVA will only work if the company is inherently profitable
  • It can take time to achieve. CVAs will run for 3-5 years
  • At least 75% by value of creditors have to agree
  • Companies operating under a CVA may be issued a VAT bond by HMRC. This is where VAT has to be paid up-front, causing cash-flow problems for businesses and often leading to the need for specialist loans.
  • Many Directors who had previously paid themselves by way of a dividend payment can no longer do this; thereby significantly impacting on their personal tax liabilities.

Other options that may be available…

At Ideal Corporate Solutions we offer a number of business finance solutions which could provide an alternative solution to a CVA. Depending on your situation you could apply for one of the following:

Invoice Finance
Asset Finance
Business Loans
Bridging Finance & Credit Lines

If you would like more information on CVA’s or other options that may be available to help your business contact the team at ICS today on 0800 731 2466

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three-main-options
The three main options for companies struggling to pay creditors
If your firm is struggling to pay creditors, the situation can quickly become out of control. If there isn’t sufficient cash available, you can find yourself in constant fire-fighting mode, paying o ...

If your firm is struggling to pay creditors, the situation can quickly become out of control. If there isn’t sufficient cash available, you can find yourself in constant fire-fighting mode, paying off who you can with little planning or forethought. However, there are options which can ensure a better managed approach. The three main options are a company voluntary arrangement (CVA), administration and liquidation.

CVA

A CVA is a means by which a company in financial difficulties can reach agreement with its creditors in order to pay off all or just part of its debts over an agreed period. It is basically the business equivalent of an individual voluntary agreement, a common financial tool for people who have found themselves in debt.

In order that you may benefit from a CVA, you will need the process to be overseen by a licensed insolvency practitioner. They will help draft the proposals and once these have been drawn up, meetings will be arranged with creditors in order that they can consider and hopefully approve them. If 75 per cent vote in favour, the CVA will be approved and once the term has concluded, the firm’s debts will be cleared.

Administration

Administration is another means of rescuing a firm that finds itself in financial difficulties. It brings a measure of control when a company is facing threats from creditors through stopping all legal actions.

One of the main aims of administration is to work out what to do with the firm and it may be that you end up organising a CVA. However, the insolvency practitioner is in control of the firm during the administrative process so it is not simply a means of keeping creditors at bay. The aim is to come up with a feasible plan for what to do with the business and this may end up being liquidation.

Liquidation

To liquidate a company means to sell off its assets in order to pay debts with the remaining money going to shareholders. There are two main types of voluntary liquidation – creditors’ voluntary liquidation and members’ voluntary liquidation. The latter is where your company is solvent but you want to close it anyway and so doesn’t really pertain to this article.

Creditors’ voluntary liquidation is an option when a firm cannot pay its debts. It involves selling off assets in order to pay creditors. In order to do this, shareholders will have to vote and pass a special resolution to stop trading.

If you feel it is necessary to place your firm into creditors’ voluntary liquidation, you will need to contact insolvency practitioners for advice and assistance throughout the process. You will then need to hold three meetings.

At the board meeting, the directors will conclude that the firm can no longer meet its liabilities and must therefore be wound up. An extraordinary general meeting (EGM) is then called in order that members can consider these conclusions and agree to creditors’ voluntary liquidation. A creditors’ meeting is then held in order to appoint a liquidator and to provide information which may be of use during the liquidation process.

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