Wipe out debt with a Company Voluntary Arrangement
When your company is facing unmanageable debt and financial pressure, it can feel like there’s no way out. But don’t lose hope— a Company Voluntary Arrangement (CVA) is a formal, practical solution that could help you repay these debts.
This legally binding agreement can help you manage your company insolvency situation while keeping your business running.
And yes, it can even address Bounce Back Loan debt.
In this guide, we’ll break down what a CVA is in business, how it works and whether it might be the lifeline your company needs.
What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement is a formal agreement between your company and its creditors. It’s a structured plan designed to repay debts over a fixed period—typically three to five years—while allowing your business to continue operating.
The key benefits of a CVA include:
- Debt repayment structure: Creditors agree to reduced repayments over an extended period.
- Legal protection: Creditors included in the CVA can’t take legal action against you, in respect of any pre-CVA debt.
- Breathing space: The company can focus on recovery without constant creditor pressure.
This allows you to focus on rebuilding your business without being burdened by historical debt.
What can cause trading while insolvent
Several factors can lead a company to fall into an insolvent position. Poor financial management, cash flow problems or extreme situations, such as unforeseen business circumstances or an economic downturn, could all mark the beginning of the path to insolvency.
Some common signs that your business is in financial distress might include:
- Difficulty paying creditors.
- Overdue tax obligations.
- Inability to pay employees on time.
- Consistently operating at a loss.
If these conditions persist and your company still can’t meet its debt obligations, it may be seen to be insolvent.
If a director is found to have been knowingly trading while insolvent, they could be held personally liable for the company’s debts and face a potential ban from acting as a director. Insolvent trading can also ruin a company’s reputation, leading to loss of business.
How does a Company Voluntary Arrangement work?
Implementing a CVA involves several key steps:
- Financial assessment: A licensed insolvency practitioner (IP) assesses your company’s financial health and determines if a CVA is viable.
- Proposal drafting: The insolvency practitioner works with you to create a realistic repayment plan that creditors can support.
- Creditor vote: Creditors review the proposal and vote. At least 75% (by debt value) of voting creditors must approve the plan.
- Legally binding agreement: Once approved, the CVA becomes binding on all included creditors.
- Debt repayments begin: Your company makes structured repayments among creditors in accordance with the Proposal terms, under the licensed insolvency practitioner’s supervision.
- Completion: After successfully fulfilling the agreement, your obligations under the CVA have ended—hopefully giving your company a fresh financial start.
The entire process is designed to give your company clarity, structure and, most importantly, time to recover.
Bounce Back Loan debt and Company Voluntary Arrangements
Bounce Back Loans (BBLs) were introduced to support businesses during the COVID-19 pandemic. However, repayment has proven challenging for many companies, contributing significantly to company insolvency concerns.
Here’s where a CVA could come into play:
- Inclusion in CVA: Bounce Back Loan debt can often be included in a CVA, allowing repayments to be spread out over an extended period.
- Interest and penalties: A CVA can freeze additional interest or penalties on unpaid BBL debt.
- Creditor protection: Including BBL debt in a CVA prevents further legal action from the lender.
It’s worth noting that while Bounce Back Loans are government-backed, they are still company debts. Including them in a CVA could provide significant breathing room for your business.
The benefits of a Company Voluntary Arrangement
Choosing a CVA offers several advantages:
1. You can continue trading: Unlike liquidation, a CVA allows you to keep your business running, protecting jobs and ongoing contracts.
2. Legal protection from creditors: Once approved, creditors can’t take legal action against your company for pre-CVA debts.
3. Improved cash flow: A structured repayment plan ensures essential costs, such as salaries and rent, are prioritised.
4. Avoiding liquidation: A CVA is a rescue tool. It’s designed to save businesses that are fundamentally viable but struggling with debt.
If your company has a solid foundation but is burdened by debt, a CVA might be the best way to navigate your financial challenges.
Is a Company Voluntary Arrangement right for your business?
A CVA can be a powerful tool, but it’s not suitable for every company. Here’s how to tell if it might work for you:
- Your company still generates revenue.
- You have a clear business plan for recovery.
- You’re committed to following the repayment schedule.
If your business is fundamentally unsustainable or lacks any real ability to generate future revenue, other insolvency options like Creditors’ Voluntary Liquidation might be more appropriate.
Common myths about Company Voluntary Arrangements
“A CVA means my business has failed” Not true. A CVA is a proactive solution taken by responsible directors who want to resolve financial difficulties head-on.
“Creditors won’t agree to a CVA” Many creditors prefer a CVA because it usually offers them a better return than liquidation.
“A CVA will ruin my reputation” Handled correctly, a CVA can demonstrate transparency and responsibility, often enhancing your credibility.
The role of an insolvency practitioner in a CVA
A licensed insolvency practitioneris central to the success of a CVA—and a legal necessity for you to proceed with the process.
Their role in a CVA includes acting as nominee. They act as an advisor initially and monitor the process throughout the entire CVA, until your repayments are complete and contract fulfilled. Their responsibilities include:
- Initial assessment: Analysing your company’s finances.
- Drafting the proposal: Creating a realistic plan for creditor approval.
- Managing payments: Overseeing monthly payments and creditor distributions.
- Ensuring compliance: Making sure your company sticks to the CVA terms.
Choosing an experienced, reputable licensed insolvency practitioner is one of the most critical decisions you’ll make during this process.
How to take immediate action
If your company is facing financial distress, acting quickly is crucial. Here’s how you can start to take control of the situation:
- Consult a licensed insolvency practitioner: Early advice can prevent worsening financial situations.
- Prepare accurate financial data: Transparency is key to gaining creditor trust.
- Commit to the process: A CVA requires discipline and full engagement from all the directors.
Financial distress doesn’t have to mean the end of your business. With a Company Voluntary Arrangement, you can regain control, manage your debts and plan for a brighter future.
Final thoughts
Understanding what a CVA is in business and how it can address company insolvency issues is crucial for struggling businesses.
A Company Voluntary Arrangement isn’t just about managing debt—it’s about securing the future of your business. Whether you’re struggling with general debt or specific concerns like Bounce Back Loan debt, a CVA can provide the structured solution you need.
Don’t wait until it’s too late. Reach out to a licensed insolvency practitioner today and start your journey towards financial recovery.