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BUSINESS INDIVIDUALS

How to Negotiate Repayments through a Company Voluntary Arrangement

  • What is it?

    It is a legally binding arrangement where time is afforded to a company, typically five years, for it to repay its creditors an affordable amount of money each month. This can allow the company to continue trading.

  • How does it work?

    A realistic repayment proposal is drawn up between the directors and/or their advisers and is presented to the company’s creditors by a licensed insolvency practitioner. It is then up to the creditors to decide whether to accept the proposal or not. For it to be accepted, 75% of creditors who vote, in monetary terms, need to be in favour. If it is accepted then the company needs to make the relevant agreed payments each and every month.

  • Pros for Directors
    • It can help avoid their company being wound up by a creditor
    • A significant proportion of debt is usually written off
    • No need for a new company to be set up
    • If the company owes money to the directors, this can be repaid after successful completion of the CVA
    • Continuity of trade
  • Pros for Creditors
    • They receive a proportion of what they owed
    • They retain a customer if they so wish to continue to deal with the company
  • Cons for Directors
    • It is a long drawn out process with certain restrictions placed on the directors in respect of how and what the company pays them
    • If the company’s circumstances improve, i.e. profits are higher than anticipated then contributions into the CVA will be increased but not necessarily proportionately
    • If circumstances worsen and payments are not maintained, then the CVA will fail and the insolvency practitioner supervising the arrangement will often be duty bound to wind up the company.
  • Cons for Creditors
    • Most of the time they have to write-off some of their debt which could hamper their cash flow
  • Is it for me?

    If you are looking to continue trading your company even though it is insolvent, then a CVA is the only way to go about achieving that. As long as you can demonstrate the business is going to become profitable again and remain viable, then a CVA could well be for you, although it is worth noting there are other solutions available that can deal with the company’s financial problems and enable business continuity.