Could a Company Voluntary Arrangement be the best option for a business facing financial distress during COVID-19?

COVID-19 Advice

With the continuing crisis brought on by COVID-19, many companies across the UK are facing an unprecedented set of financial challenges.

Many businesses are enduring the financial distress brought on by a decline in trading activity, with cash flow suffering as a result of customers not being able to afford to pay invoices on time. There are also major restrictions on many businesses with regards to offices and/or work premises being closed or restricted etc.

Whatever is to blame for the financial distress your business, or a client’s business, is under, it is vital that the causes are dealt with as soon as possible. If a viable business is suffering from cash flow issues as a result of COVID-19, a Company Voluntary Arrangement, commonly known as a CVA, may be an option.

What does a CVA involve?

A CVA is a formal compromise agreement that is put in place between a company and its creditors. This agreement usually includes a monthly payment plan, or some other form of settlement, which must be agreed to by 75% in value of any unsecured creditors who choose to vote. If the CVA is approved, its terms are now legally binding on all of the parties included in the proposal, whether they voted or not.

Each CVA proposal is bespoke, but one of the key benefits of a CVA is that it offers a company the chance to continue trading as it looks to improve profitability. In essence, a CVA gives a company a little breathing room, relieving immediate creditor pressure and affording an opportunity to trade its way out of difficulty.

What are the other benefits of a CVA?

If the action is taken swiftly enough, a CVA can often prevent a winding-up petition from taking effect, as this new agreement provides reassurance to the creditors that a portion of the debt will be repaid.

At the present time, with many companies remaining closed and a significant number of staff furloughed, a CVA could be an enticing option to creditors, while also ensuring the long-term survival of the business.

For a CVA to be successful, it needs to offer creditors maximum returns, but still be set at a workable level for all parties. If you or a client have a business which is viable going forward, but in current financial distress, a CVA is certainly an option worth exploring.

If you want to talk through how a CVA, or any other business recovery or restructuring strategy, could work for you, get in touch by calling 0300 303 8284 or emailing enquiries@theinsolvencyexperts.co.uk. Once you contact us, one of our expert team will be happy to guide you through your options.