CVA

Company Voluntary Arrangement usually are a better prospect than to see the company enter terminal insolvency and every creditor losing their money. If a company has a viable future, but current cash flow problems have resulted in mounting pressure, a CVA may be a good solution.

For a CVA to work, the directors and management must accept the need for change and be prepared to fight for the company’s survival. The directors must be prepared for this and must realise that a running a company in a CVA is harder than liquidating the business. However, by proposing a CVA you are demonstrating that you are trying to maximise creditors’ interests so it can often be viewed positively.

Advantages of a Company Voluntary Arrangement

• The company continues in business with a view to improving the position of the creditors

• Stops court action and winding up procedures

• Eases cash flow pressures

• Directors remain in office and retain control of the business

• Structured approach ensures that all creditors are treated equally and the return to creditors is maximised 

Disadvantages of a Company Voluntary Arrangement

• The business will be required to adhere to the terms of the agreement. A failure, at any stage could result in liquidation. Therefore the business could make payments for several years only to find that the business is placed into liquidation.

• Requires significant support from interested parties. Suppliers are usually required for the ongoing business and there is a risk that those in a strong negotiating position will take advantage of the position.

• The shareholders of the business will derive no benefit of their investment for the duration of the agreement. This may be of particular concern for owner managers.

• A large proportion of CVAs fail. This is usually because the underlying problems of the business were not resolved prior to the CVA.