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How a company voluntary arrangement can rescue a business in financial troubleIf your company is in financial difficulty a company voluntary arrangement could put a stop to court action such as a winding up petition and write off 50% or more of the business debt.A company voluntary arrangement (CVA) is designed to rescue a business where it is unable to pay its debts and is facing closure. Creditors agree to accept a settlement of their debt payable over a five year period.The business maintains agreed monthly repayments based on an amount that it can sensibly afford. While payments are being made, no further interest or charges can be added to the outstanding accounts.At the end of the arrangement, any debt which has not been paid is written off by the creditors, leaving the company debt free.One of the major questions people ask is:How much does a CVA cost?The answer is, that while a fee is payable to the insolvency practitioner who is licensed to implement and supervise the arrangement, this is normally deducted from the monthly payment to creditors. The business simply makes the agreed affordable monthly payment which is distributed by the supervisor on its behalf to the creditors and the fees are taken out of that payment.This gives the CVA a significant advantage over a pre-pack administration or phoenix as a company rescue solution. Pre-pack administration will normally require a minimum investment of GBP15,000 in order to buy the old company assets. A company voluntary arrangement is a private agreement. As such there is no advertisement and no need for clients to be told. In addition, the business is not broken up and key people and teams can remain together.For a CVA Business practices may need to be changedAlthough a company voluntary arrangement has significant advantages, there are also potential problems which need to be understood and managed. Because there is no requirement for any of the Directors or management team to change, there is a risk that the mistakes which lead the company to get into debt in the first place will continue to be made. To avoid this situation, the directors implementing a CVA should consider introducing new ideas by employing a new member of the team.In addition, having implemented a CVA, the company's credit rating will be affected. This may mean that it will be difficult to obtain additional bank finance while the arrangement is in place. Despite these potential issues, the advantages of a company voluntary arrangement as a business rescue tool are significant. This is not least because no investment is required to implement the solution. This is a key advantage at a time when cash is almost certainly not freely available to the company. Article Tags: Company Voluntary Arrangement, Company Voluntary, Voluntary Arrangement
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