Entering into a CVA allows a company to strike a deal with its creditors and effectively work out a strategy to have its debts repaid. A Company Voluntary Arrangement is a legally binding agreement that also gives the company relief from VAT and tax payments, including PAYE, while the debt is being repaid, effectively giving it a chance to recover and rebuild in a more stable manner.
What does a CVA entail?
When a company is in debt, it may approach its creditors in order to negotiate payment terms for outstanding money that is owed. Creditors, who are more than likely to want to get their money back, rather than risk losing it completely, are inclined to support Company Voluntary Arrangement terms, which allow the company in debt to repay what is owed in smaller monthly amounts, over a fixed period of time.
What are the benefits of entering into a CVA?
A CVA gives a business a little more freedom to recover and grow, while repaying any debt that is owed. It offers relief from tax and VAT payments for the duration of the CVA, and it can also terminate employment contracts, enforce redundancies and negate leases with no cost to the company concerned.
A CVA can make a large debt easier for a company to work with, by managing it in dividends and making it more affordable to pay off over the long term. The repayments are usually calculated into monthly instalments that factor in interest, while ensuring that the debt is paid off.
A CVA means that a company does not have to change its name in order to continue trading or make any changes to the directors who are in charge. Special agreements and accreditations are still applicable and the company can use its reputation and history as leverage to help it build going forward.
As far as creditors are concerned, it is usually in their best interests to agree to the terms, as they are guaranteed to recover their money and retain their customers for future business.
Are there any disadvantages to a CVA?
In order for it to be viable a CVA needs the agreement of at least 75% of creditors. During that process, creditors and suppliers are notified of the proposed terms, so it is not a confidential process. It is also likely to appear if someone wants to conduct a credit check on your company.