Earlier this week we looked at the latest corporate insolvency figures for May when they were published by The Insolvency Service. 

As well as being the highest monthly total seen since 2019, there was another interesting undercurrent that caught the eye – and that was the Creditors Voluntary Arrangements (CVAs) have more than doubled over that time and are now at their highest monthly level since December 2020.

So why are they so high and how can company directors and business owners benefit from one? 

What is a Creditors Voluntary Arrangement?

A Creditors Voluntary Arrangement (CVA) is a formal insolvency agreement reached between an insolvent business and its creditors, where, in return for a proportion of the outstanding debts being written off, the company agrees to pay back the remaining debt in a series of regular instalments, usually over a period of sixty months or five years.

It’s a proven way to help companies in financial distress ease the pressure on their cash flow and profitability and continue trading while continuing to repay their arrears. 

The majority of CVA agreements contain debts to HMRC such as corporation tax, unpaid PAYE or VAT and while there are specific measures to help settle these debts – time to pay agreements – a CVA will go some way to making sure these are serviced too without any additional loss to the taxpayer. 

Being accepted for a CVA is not a guarantee. Not every case or business will be suitable and each one requires 75% of creditors agreeing to the deal before it can be made legally binding. 

Support should not be taken for granted but if they can be confident that the business will be able to maintain payments for the duration of the CVA period then they will likely support it. 

Benefits of a CVA

  • Avoids liquidation 

If a CVA is agreed then your business cannot be forced into liquidation by creditors. Directors retain the ability to choose to close through a creditors voluntary liquidation (CVL) or other method later down the line. 

The business continues to trade under the control of the existing directors.

  • Legal protections 

During a CVA, all legal actions against a business are paused or cease providing valuable breathing space and protection for a company from further action from its creditors. 

  • Business Continuity 

A CVA allows a company to continue trading, giving directors the opportunity to restructure and re-evaluate the business, and to create better structures and business strategy and make more profit to help repay creditors too. 

  • Maintains reputation

Unlike other insolvency procedures such as administration and liquidation, details of a company going into a CVA are not made public. This can help a business maintain its good standing with customers and suppliers and allow it to maintain existing relationships which could be crucial to giving a CVA every chance of success. 

If reading this you think that your business might benefit from the advantages of a CVA and believe it can meet the criteria, you should get in touch with us as soon as you can. 

We offer a free initial consultation with an expert advisor who can talk through the finer details of an arrangement and see if a CVA is the most appropriate path to take – others might be more beneficial still. 

Whatever the right path for you and your business, they’ll be able to guide you – every step of the way.