When you open a company, you definitely want to get the best returns from it. 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. Through a CVA, you will also have a chance to overhaul your company’s management as well as operations.
Before opting for company voluntary arrangement, it is important to seek support from financial business advisor. You can know the impact of the CVA on your business through the help of the financial advisor. 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 top management is retained
In some cases, the top management may have played a role in the financial mess that your organisation is in. Despite this, the management should be allowed to run the company during the CVA process. The management will be critical in ensuring that the company’s operations do not come to a standstill when the CVA is being implemented. Since the top directors know the “ins” and “outs” of the organisation, their support will be critical. When the management is retained and a professional financial adviser brought on bought, the chances of the organisation overcoming its financial problems increase.
- ii) Lower restructuring costs
High costs can impede your company’s quest to get back on its feet financially. Compared to other restructuring options such as receivership and insolvency, setting up a CVA arrangement and managing it is affordable. 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. This means your business will have more cash flow and working capital.
iii) Keep the matter private
With majority of insolvency processes, the public would know about your company’s struggling finances and this can affect its recovery efforts. On the flip-side, CVAs do not have to know by the public. For instance, there is no requirement for the disclosure of the debt restructuring efforts in the company’s communications.
The above are some reasons why you may want to implement a Company Voluntary Arrangement (cva).