How CVAs can assist with debt relief

With the House of Fraser case hitting the headlines in recent weeks and many UK businesses struggling in the current economic climate, company voluntary arrangements (CVAs) are increasingly mentioned in the press as a route out of a difficult financial situation.

Defined as a voluntary arrangement for a company whereby a plan of reorganisation or composition in satisfaction of its debts is put forward to creditors and shareholders, in CVAs there is limited involvement by the court and the arrangement drawn up by a licensed insolvency practitioner, like Walsh Taylor, and agreed by 75% of the Company’s creditors.

In terms of how a CVA can assist with debt relief, though you cannot achieve complete debt forgiveness with your creditors, it may be possible to reduce the total repayment down to a figure that is achievable over a fixed period of time. If your business owes a large amount to its creditors, for example, then a CVA could be advantageous as it could enable the debt to be restructured and a fixed amount paid back over an achievable period of time. This can assist the Company with its cashflow.

It is also worth noting that not all companies are able to put forward a CVA proposal to their creditors. There are certain conditions that must be met, which include the Company needing to be insolvent on a balance sheet or cash flow basis, there must be a realistic prospect of repayment to its creditors, the CVA must be commercially viable and there must be a clear outline as to why the CVA would be of benefit to the creditors of the Company.

Should the above criteria be met and the CVA approved by the creditors the Company must at all times strive to achieve to meet the terms of the CVA, however if circumstances arose that affects the ability to meet these, the Company must seek to contact their insolvency practitioner to find a workable way forward.

Ultimately, as with most commercial financial pressures, acting quickly and seeking help is extremely important to enable the Company to ensure they have as many options available to them to go forward with their business.

For more information on our business support services and how they can be of assistance in Leeds, Bradford, Harrogate or the North East, please call 03300 244 660.