Companies enter into company voluntary arrangements or CVAs to allow them to continue to conduct business while tackling their debts in an easier and more manageable manner.
Typically, creditors agree to write off a portion of the troublesome debt, and the company agrees to repay the remaining amount over a five-year period with regular payments.
company voluntary arrangements are nothing more than that, but there are several myths and misconceptions regarding them.
Each one will be tackled in turn.
A myth about CVAs – Busted
1. You don’t get rid of your debt with a CVA, and it is expensive!
There are fees associated with company voluntary arrangements, which are charged by the licensed insolvency practitioner overseeing the process. It depends on a number of factors, such as how complex the CVA will be, how much debt is involved, and how many creditors are involved.
There is usually a clear understanding of the costs at the start of the bankruptcy process among insolvency practitioners.
2. Creditors can still take action despite a CVA
Despite the fact that Company Voluntary Arrangements offer significant protection from enforcement action, they are not without risk. All legal actions including winding up petitions, statutory demands, and even bailiff proceedings are frozen if creditors accept the arrangement.
3. Dodging your debt with a CVA is easy
There is no truth to this statement.
There is no reduction in total debt owed by a business as a result of a company’s voluntary arrangements. An organization that enters one must still repay its debt, however only to the extent that it can reasonably afford.
Usually, creditors write off some of the debt, but they can also demand full payment if necessary.
4. The fact that all our customers will find out about this could ruin our reputation
The rumor has been debunked again.
Unlike a liquidation, not all creditors involved in the CVA arrangement will be aware of it. An official notice will be lodged at Companies House, but no announcement will be made publicly.
5. An investigation will be conducted into the personal and financial history of all directors
This is not true.
A company’s voluntary arrangement is similar to a loan in that as long as the payments are made, the business will continue as usual. It is not possible for directors to be investigated during a company’s voluntary arrangements, it only happens during liquidations.
6. With a CVA, you lose control of your business
CVA agreements prevent this from happening.
The directors or owners of the business remain in control at all times. A bankruptcy practitioner’s role is merely to examine the arrangement as a whole, including the validity of creditors’ claims, to collect contributions or assets on their behalf, and to pay creditors from the proceeds.
7. In the end, the large payment could be crippling for my business
I also believe this to be a myth.
A CVA arrangement differs from purchasing a used or new car or another expensive consumer contract, which might include a “balloon” payment to artificially reduce the overall repayment cost.
Then there are all the ones in between!
When the company successfully completes a company voluntary arrangements, it will receive a Certificate of Completion, and Companies House will receive notification that the agreement was completed.
Business owners who are having difficulty making financial payments can manage their debts and meet their obligations using a company voluntary arrangements, which is a developed and respected insolvency process.
BusinessRescueExpert provides expert advice on company voluntary arrangements and other financial solutions if you think your company could benefit from them.
A CVA or other process may benefit your company in the short, medium or long term. An advisor will be able to tell you what you can do to improve your situation – today.