As Easter and Spring converge with British Summer Time beginning this weekend, many business owners and directors will enjoy some well-earned downtime at the quarter point of 2024.
They might begin to ponder on the nature of new beginnings and fresh starts and how beneficial it could be for them and their business if they were able to – if not get rid of all – greatly reduce their overall and monthly debt burden.
How much spare cash would this free up? Would they be able to negotiate better terms from lenders and suppliers on the back of this additional leverage? Would they get more sleep and enjoy their free time more knowing that their business and livelihood had a realistic lifeline?
There is a process that could make all these ideas a reality.
It’s called a company voluntary arrangement (CVA) and it works like this:
Company Voluntary Arrangements over the last five years
| Year | No. of CVAs |
| 2019 | 355 |
| 2020 | 260 |
| 2021 | 115 |
| 2022 | 111 |
| 2023 | 186 |
Figures from The Insolvency Service
Looking at the corporate insolvency statistics over the last five years we can see that the number of CVAs have dropped consecutively from 2019 to 2022. This is primarily due to the effect of Covid-19 but in 2023 we can see how they took a sharp rise again by 67.5%.
In 2024 there have been 30 CVAs activated (16 in January and 14 in February) both of which are increases on the same month a year previously indicating that the number of arrangements will increase throughout 2024.
CVAs have always been a more specialised insolvency procedure than a liquidation, which involves closing a business down.
They are only appropriate for companies that have a decent chance of achieving profitability with their debt burden reduced. There are also other advantages to pursuing one.
Why choose a Company Voluntary Arrangement?
- Avoids liquidation
One of the primary benefits of opting for a CVA is that it avoids you being forced into a compulsory liquidation by creditors or voluntarily closing through a creditors voluntary liquidation (CVL).
It also allows you to proactively address financial problems to give your business a chance to stabilise its finances, restructure its operations, and position itself for long-term viability and profitability by increasing your monthly cash flow.
- Director Control
Unlike a liquidation or an administration, directors and business owners are still entitled to keep control of their company during the CVA procedure.
It allows them to remain in charge of their business while implementing changes. They still have to comply with the terms of the CVA proposal including meeting the regular monthly repayments, but they continue to oversee the day-to-day running of the company including all the major and minor decisions they’ve always taken.
- Relief from legal action and creditor pressure
A CVA is an insolvency procedure and as such, an insolvency moratorium is put into place to allow you and your business ‘breathing space from its creditors legal and recovery actions in order to allow them to pursue their options. As long as the business continues to adhere to the terms of the arrangement, creditors are bound by the proposal and cannot take further legal action.
- Less damage to your reputation
The CVA procedure may result in difficulties for the company in obtaining credit from some sources, but it’s less damaging for company reputation than liquidation could be.
Unlike other processes, there is no need for a CVA to be advertised in the London Gazette and become public knowledge. This ensures customers don’t lose faith in your company and avoids further financial problems that a downturn in trade would cause.
Now you can see how a CVA can benefit a business, getting some advice and talking over your company’s position can also be advantageous to a business owner.
This is why we offer a free initial consultation for those who want to discuss how they can rescue and restructure their business while they still have the opportunity in their own hands to do so.
Once they virtually meet with one of our advisors, at a convenient time and date for them, they’ll have a better idea about what other options they could employ – but only after they take that first step and get in touch first.