Keeping control of your company

Keeping control of your company through Company Voluntary Arrangements

The challenges that many businesses have recently faced as a result of the economy can often result in good businesses being severely affected by a downturn in sales, or by rising overheads.

This has placed additional pressure on businesses who may not know if they should continue to trade or not. One solution, which appears to be becoming more popular with Directors, is to look at Company Voluntary Arrangements. A CVA would enable a business to ‘ride the storm’ with their existing business, believing that they are sufficiently profitable to enable payment of their historical debts providing they are given the time to do so.

A CVA is a legally binding agreement between a Company and its creditors to pay back as much as they can afford over a given period of time. It enables the business to continue to trade and the contributions can be made through ongoing profits introduced monthly, or via a lump sum. Debts will also crystallise meaning that no further interest is likely to be accrued.

Main considerations for a CVA

* The outcome for the creditors

The proposal must ensure that what is being proposed would be better than the alternative.

* The attitude of the Creditors

75% of the unsecured creditors (by value) who vote in relation to the CVA need to accept the terms of the proposal in order for it to be deemed approved.

* Crown Liabilities

Although government legislation is intended to promote business rescue, H M Revenue & Customs may reject a CVA proposal on the grounds of a previous history of poor payment. Companies therefore need to ensure that every effort has been made to seek repayment plans with HMRC.

* Fit, feasible & fair

The CVA should represent a fair offer, which is capable of being achieved and is fit to be proposed and considered.


BENEFITS OF A CVA

The most important benefit of a CVA is that it is a formal method of business recovery, providing protection to the company and allowing the business to continue, whilst enabling a better outcome for creditors. Another benefit of a CVA is that it is a way of buying time to either cut unprofitable areas of a Company or to simply start seeing the benefits of rises in sales or increased spending on marketing.

An added benefit available to Directors when choosing a CVA is that less focus remains on them; limited investigations are undertaken and no report is submitted to the Insolvency Service on their conduct.