Company voluntary arrangement for businesses has many advantages, and they outweigh the negatives. What are the positives you can get from a CVA and how does a Company Voluntary Arrangement work?
Your business can continue trading
One of the main advantages of a CVA is that the business is going to continue trading. Even if the creditors have taken legal action, once the CVA is agreed to, the action is going to be stayed and CVA won’t take fresh action against you. If the creditor had initially issued a winding-up petition against the business and the accounts frozen. A CVA is going to buy some time to seek a validation order so you can have your accounts reponed and you can continue trading.
Charges and interest are frozen
Another benefit of CVA is that when this arrangement is in place, the interest and charges applied to the debts is going to be frozen. This will prevent debts from increasing and give you a specific amount to repay.
It puts an end to creditor pressure
Getting constant demands of payments from creditors is very draining and stressful, especially when they are coming from suppliers you value and powerful creditors such as HMRC. The earlier stages of CVA are going to involve creditors being asked to vote on whether to accept the CVA terms being proposed. if they accept, the creditors are not going to make demands for payments or even threaten legal action against you. This can be a huge relief for your business and you can get breathing space to focus on your business’ recovery.
You are in control
A CVA allows the owner/directors to be in complete control of the business during and after the process, which is different from other insolvency options like a creditors voluntary liquidation and administration. No one understands the business better than you, and even if you have had mixed performances in the past, your knowledge and experience in this field are going to provide the company with the best chance of recovery.
It can reduce the debt
This is another benefit you can expect to get when you go with a company voluntary arrangement. When you are done with the CVA, a significant amount of debt is written off. This is good for your business because it leaves it in a better position to grow in the future and trade profitably.
A common concern most businesses have when it comes to CVA is that existing suppliers are not going to be ready to give them credit once they learn that they are going to get only a proportion of the money they are owed. Most suppliers need the business just as much as you need the suppliers, but keep in mind that they can decide to change their payment terms before agreeing on anything.
Leases and contracts may be terminated
This is an advantage that has attracted some controversy in the recent past. If there are supply contracts, existing leases, or employment contracts that can put the survival of the business at risk, you can renegotiate or even terminate them under the terms of a CVA. This is going to help in reducing the costs and giving the business the best chances of success.
You are going to get professional advice
A CVA process is going to buy you some time and also benefit from the professional advice you are going to get from the company rescue team. They are going to work with your business to come up with a good plan for restructuring your business model as you continue running the business on a daily basis.
Your conduct is not going to be investigated as the director
An important part of most insolvency processes is where the conduct of the directors is investigated for the period leading to insolvency. If any improper practices or wrongful trading is identified, the directors are going to be held liable for the proportion of business debts. There are cases where the director ends up facing a disqualification order. If it is a CVA, you don’t have to worry about that because there isn’t a requirement for the investigation to be done.
It is cheaper compared to other insolvency procedures
The cost associated with setting it up and management and administration costs are less when compared to other insolvency procedures. You have to pay an upfront fee when setting up the initial creditors’ meeting, but the largest share is going to go to ongoing costs of the CVA repayments you have to do monthly. This is going to make it easier for you to budget for it.