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:
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