Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) can ease your cash flow allowing you to potentially prioritise key suppliers over HMRC, a CVA can help you trade back to profitability.

What is a CVA?

A CVA is a formal insolvency procedure allowing a financially troubled company to reach a binding agreement with its creditors about payment of all, or part of its debts over an agreed period of time.

The CVA is based on the principle of preserving the company and enabling it to continue trading to rebuild turnover and profit, paying back what it can afford over the agreed period of time (usually 5 years).

Often creditors will be required to write off significant amounts of debt as part of the CVA agreement.

If a CVA is agreed, your limited company can continue trading.

Benefits of a CVA

  • Keep Trading – Keep Earning
    Directors remain in control of the company allowing for the best chance of survival.
  • Prioritise Creditors
    The continued supply of goods and services can be essential for trading. Debts to such suppliers can be prioritised.
  • One affordable monthly repayment
    Payment based on affordability – not how much is owed.
  • Creditor Protection
    Stop pressure from tax, VAT and PAYE while the CVA is being prepared. When approved all included creditors are prevented from taking legal action.
  • No need to tell customers
    No investigation into the directors’ conduct, nor any investigation into other companies which may be run by the director.
  • Flexible Repayments
    If your business income is seasonal, your creditors may agree to allow payment variations.

Is A CVA Right For My Business?

A company must be considered insolvent or already be in administration to be eligible to enter into a CVA.

A CVA may be appropriate where:

  • Directors are committed and want to avoid liquidation.
  • It is the directors’ view that it can be successful and profitable in the future but needs a bit of time.
  • The company needs to restructure.
  • The company has experienced late payers or bad debts which have affected short-term cash flow.
  • Directors have tried to negotiate new terms with their creditors directly but failed.
  • Creditor pressure is preventing the company from moving forward

Is My Company Insolvent?

A company must be considered insolvent or already be in administration to be eligible to enter into a CVA.

Cash Flow Test

Can the company pay its debts as and when they fall due? If the company is suffering from poor cash flow and as a result, it is unable to meet payment terms of its creditors or maybe it is not paying national insurance and income tax contributions for directors or staff, then your company is more than likely insolvent.

Balance Sheet Test

Does the company owe more than it owns, or in other terms are the company’s assets exceeded by its liabilities? If the answer is yes, then the company is more than likely insolvent.

Legal Action Test

If a creditor has taken legal action and has obtained a county court judgment (CCJ) or a Statutory Demand against the company, this may indicate the company’s insolvency and allow the creditor

to petition to wind it up. Therefore if your company has one or more CCJs and/or a Statutory Demand, it is more than likely insolvent.