Effects of company voluntary arrangement

Company voluntary arrangements are fair debt repayment plans set up and managed by licensed UK insolvency practitioners on behalf of businesses that owe significant sums to unsecured creditors and have a very real chance of being successful again. CVAs can be lifelines – but as with any other corporate insolvency procedure, they have both advantages and disadvantages. It’s essential to consider the effects of company voluntary arrangement when evaluating the potential effect of company voluntary arrangement on your business. Doing so will help you to form a balanced view before deciding whether or not to get a CVA.

What Are the Advantages of a CVA?

A company voluntary arrangement has significant advantages:

  • CVAs are more affordable than other insolvency procedures, including administration.
  • Creditors often favour CVAs, as they’re overseen by IPs (i.e. independent experts) and offer attractive returns.
  • A CVA can be in place in six to eight weeks, so your firm moves forward rapidly.
  • A particularly helpful effect of company voluntary arrangement is financial affairs are streamlined: debts are consolidated and interest is frozen. There are related advantages too: monthly repayments are affordable and based on expected profits, while remaining debt is written off when the CVA ends.
  • Directors stay in control and don’t face conduct investigations. The company continues operating and may still trade with creditors. With your IP’s support, you’ll cut costs and increase working capital.
  • Negative publicity is avoided, as CVAs aren’t announced in The Gazette and don’t require court hearings. This helps your business to retain suppliers and customers.
  • Another favourable effect of company voluntary arrangement concerns legal protection. A CVA binds all unsecured creditors – they can’t pursue legal action against your business.

What Are the Disadvantages of a CVA?

Although the overall effect of company voluntary arrangement is normally positive, it’s important to be aware of key disadvantages:

  • A company voluntary arrangement is a major, long-term commitment, typically lasting three to five years.
  • A CVA needs widespread approval: at least 75% of creditors (by unsecured debt value) and 50% of shareholders must agree to it. A compelling CVA proposal by an expert IP is therefore essential.
  • Secured creditors aren’t bound by CVAs so may still launch legal action (though you could prevent this by negotiating separately with them).
  • CVAs are recorded at Companies House and damage businesses’ credit ratings for around six years. (Such disadvantages are, however, less damaging than ignoring debt problems.)
  • The beneficial effect of company voluntary arrangement will be undermined if repayments are missed, and the CVA may fail.

Is a CVA Right for You?

Is your limited company overburdened by unsecured debts? Is it fundamentally viable with encouraging financial forecasts? Are you ready to make operational changes for the better?

If you answer yes to these key questions, your company could be a good candidate for a CVA. But it’s crucial to contact an insolvency specialist to gain a detailed understanding of the effect of company voluntary arrangement, including CVA advantages and disadvantages.

CVAs from the Experts – Contact Irwin Insolvency

CVA advantages often outweigh the disadvantages, which is why we guide numerous companies through this type of insolvency process.

We can assess your company’s suitability for a company voluntary arrangement, produce a robust proposal and supervise the agreement.

Take the first step towards corporate recovery – contact Irwin Insolvency today.

Contact Irwin Insolvency today for your free consultation

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0800 254 5122

About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.