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A company voluntary arrangement or CVA is an agreement between a company and its creditors to allow it to continue to remain open and trading but tackling its debt in a more manageable and sustainable way.
The creditors agree to write off a proportion of the troublesome debt and in return the company agrees to repay the remainder over a period of time – usually five years – with regular monthly payments.
That’s all a CVA is and there have been several myths and misconceptions that have sprung up about it.
We’re going to tackle them one at a time.
1. A CVA is expensive and doesn’t get rid of your debts!
A CVA isn’t free – there are fees charged by the licensed insolvency practitioner who has to oversee the process. This is based on how complex the CVA is based on the size of the business, how much overall debt is involved and the number of creditors with an interest.
Most insolvency practitioners are clear about their costs at the start of the process.
2. A CVA doesn’t stop creditors taking action
A Company Voluntary Arrangement does offer significant legal protection from enforcement action. If creditors accept the arrangement then all legal action including winding up petitions, statutory demands and even bailiff proceedings are frozen.
3. A CVA is an easy way of dodging your debts
This is false.
A CVA doesn’t reduce the total business debt owed. Any company that enters one still has to pay back its debt but only in a repayment for what it can reasonably afford to repay.
Creditors do write off a proportion of the debt usually but they can insist on total repayment if necessary.
4. This could ruin our reputation because all our customers will find out
Another false rumour.
The only people who will know about the CVA arrangement are the creditors who are involved and an official notice is logged at Companies House but unlike a liquidation, there is no public announcement.
5. All directors personal and financial history and information will be looked into
In a CVA, the business will run as usual as long as the repayments are made. Directors’ investigations happen during liquidations but not in a CVA.
6. You lose control of your own business with a CVA
This is not going to happen under a CVA agreement.
The directors or business owners retain control at all times over their business. The role of the insolvency practitioner is purely to review the arrangement as a whole including the validity of creditors claims, collect contributions or assets on their behalf then pay the creditors out of the amount received.
7. The final huge payment could be crippling for my business
This is also a myth.
Unlike purchasing a used car/new car or other expensive consumer contract that might contain a large “balloon” payment at the end in order to artificially lower the overall cost of repayment, the final payment of a CVA arrangement is the same total as the first.
And every other one in between!
Once a CVA is paid off in full, the company receives a Certificate of Completion and Companies House are informed that the agreement has successfully been concluded.
A CVA is an established and respected insolvency process that helps businesses with trouble making financial repayments to manage their debt and meet their obligations in an efficient manner.
If you think your business could benefit from a CVA or other professional advice then you can ask an expert – BusinessRescueExpert!
An advisor will be able to let you know whether a CVA or any other process could benefit your company in the short, medium or long term and what you can do – today – to start improving your situation.