A Company Voluntary Arrangement (CVA) is a legal agreement between a company and its creditors that allows the company to repay its debts over a period of time, rather than all at once.
This can be a useful tool for companies that are facing financial difficulties, but believe they can recover with a bit more time and flexibility in their debt repayment.
Advantages of a CVA for the company and its directors
For the company, a CVA can help to restructure debt and avoid liquidation. This can allow the company to continue operating, maintain jobs and protect its assets, rather than having to sell them off to pay creditors.
For the directors, a CVA may help reduce the risk of personal liability and of disqualification, because it shows the problem is being dealt with formally and early.
The CVA process usually involves a licensed insolvency practitioner who will act as the nominee, and be responsible for drawing up the proposals and supervising the process. This can be a great help for directors who may not have the necessary expertise in such matters.
It’s also important to know that a CVA can have negative consequences, such as damage to reputation, which might affect the company’s ability to trade. On the other hand, for a viable business it may be a better option than going into liquidation.
A CVA can also help provide a period of greater financial stability, which may help the company to improve its financial position and to attract new investment or funding.
A CVA can also provide breathing space for the directors and the company to come up with a viable recovery plan, and allow them to continue trading while making payments to creditors under the agreed terms.
A CVA is not always the best solution for every company. It’s important to consider the long-term prospects for the business, and the potential impact on stakeholders, before deciding to propose a CVA.