Anyone running a company is usually focused on generating profits for its investors. However, sometimes, you may be unable to reach your revenue goals due to various challenges. You may find your business in large debts due to both internal and external factors.
If your company is in distress, you have various options of getting it back on the right financial path. One of the options you can consider is a Company Voluntary Arrangement (CVA). When you implement a CVA arrangement, you can pay off your creditors over an agreed period of time. Moreover, while the debts are being paid, you will have the opportunity to address issues related to operational challenges that may have led to the debts.
Before opting for a Company Voluntary Arrangement, it is important to seek support from financial business advisor. The advisor will help you understand how a CVA is implemented and its impact on the business. You should inquire about the advantages and disadvantages of a CVA to find out whether it would be the right option for your business.
The major advantages of a CVA arrangement are:
i)The directors remain in the company
Sometimes, your company’s financial woes may have been contributed by the management style. However, despite this, the management can play an important role in making the CVA successful. The management will be critical in ensuring that the company’s operations do not come to a standstill when the CVA is being implemented. The management knows the “ins” and “outs” of the organization and their support will be important in the recovery of the company. When the management is retained and a professional financial advisor brought on bought, the chances of the organization overcoming its financial problems increase.
ii) Lower costs
When your company is undergoing some financial trouble, the last thing you want is to implement expensive recovery options. It is quite affordable to set up and maintain a CVA arrangement compared to other restructuring options like receivership and insolvency. A CVA does not require a cash lump sum to buy business assets, like is the case with a pre-pack administration.
You will have to pay an upfront fee to set up a creditors’ meeting. The advantage of a CVA is that the costs you will incur in meeting the creditors will be deducted from the monthly premiums you would have to pay back your debt. For this reason, your business will end up with more working capital and operational cash.
iii) CVAs are kept private
Most insolvency processes are public and this can hurt your company’s efforts for recovery. On the other hand, CVAs can be kept private. For example, the process does not have to be indicated in the company’s communications.
The above are some reasons why it makes sense to restructure your company debt through a Company Voluntary Arrangement (CVA).