At Springfields, we help guide companies facing financial distress, where directors often feel trapped between mounting creditor pressure and the fear of losing control. One potential solution is a Company Voluntary Arrangement (CVA), which offers a practical and constructive route to rescuing a viable business while protecting its future.
So, the key question is, what is a CVA?
A CVA is a legally binding agreement between an insolvent company and its creditors. It allows the company to restructure its debts and repay them over an agreed period, typically through affordable monthly contributions. Unlike liquidation, a CVA enables the business to continue trading, preserving jobs and goodwill.
Once approved by 75% by value of voting creditors, the CVA becomes binding on all unsecured creditors, including those who voted against it. This delivers certainty and stability, giving the company vital breathing space to implement a turnaround plan.
Just to break it down:
- Directors Stay in Control: Unlike administration, management remains in charge throughout the CVA.
- Legal Protection: Creditors cannot take enforcement action for pre-CVA debts.
- Better Returns for Creditors: CVAs often provide a higher return than liquidation.
- Flexibility: Can include renegotiating leases, reducing overheads, and restructuring operations.
Another question we are frequently asked is why choose a CVA?
A CVA allows directors to retain control of the business, unlike administration where control passes to an external party. It provides protection from legal action, meaning creditors cannot pursue enforcement for pre-CVA debts and management can focus fully on recovery. Creditors often support CVAs as they can deliver a better return than liquidation. CVAs are also flexible and can include lease restructures, negotiations with landlords and, where appropriate, partial asset sales.
The advantages of a CVA are clear. It avoids the stigma and disruption associated with liquidation, maintains trading continuity and customer confidence, offers a structured and realistic repayment plan and provides the time needed to implement operational changes and restore profitability.
Key Advantages breakdown
• Avoids the stigma and disruption of liquidation
• Maintains trading continuity and brand reputation
• Provides breathing space to implement operational changes
• Offers a structured, realistic repayment plan
Real-World Example
Imagine a retail chain struggling with high rent and supplier arrears. Through a CVA:
• Landlords agree to reduced rent
• Suppliers accept staged payments
• The company continues trading, retaining staff and customer loyalty
Result? The business avoids liquidation and returns to profitability within 18 months.
The most important consideration is whether a CVA is right for your business.
A CVA is most effective for companies that are insolvent but fundamentally viable. If your business can generate sustainable profits once historic debt pressure is reduced, a CVA could provide the lifeline required to secure its future.
We invite you to speak with one of our expert advisers in a FREE consultation, where we will assess your situation and guide you towards the most appropriate solution.
