A company voluntary arrangement (CVA) is a legal agreement between a company and its creditors that allows the company to pay off its debts over a period of time, rather than being forced into bankruptcy or liquidation. A CVA is typically proposed by the company’s directors and must be approved by a majority of the company’s creditors.

Under a CVA, the company agrees to pay off its debts over a period of time, typically three to five years. The terms of the CVA, including the amount of the payments and the schedule for making them, are negotiated between the company and its creditors. The CVA is overseen by a licensed insolvency practitioner (IP), who acts as a mediator between the company and its creditors.

Why use a CVA?

A CVA can be a useful option for a company that is struggling financially but believes that it can turn its economic viability around with some additional time. It allows the company to continue operating while it works to pay off its debts, rather than being forced to close down.

There are several benefits to using a CVA to resolve financial difficulties.

1. It allows the company to continue trading: A CVA allows the company to restructure its debts and continue operating, rather than closing down and going into liquidation. This can help to preserve jobs and protect the company’s reputation.

2. It gives the company time to pay off its debts: A CVA allows the company to pay off its debts over a fixed period of time, rather than having to pay them all at once. This can help to reduce the financial burden on the company and allow it to focus on turning its financial situation around.

3. It can improve the company’s relationships with creditors: By agreeing to a CVA, the company’s creditors are showing a willingness to work with the company to find a solution to its financial difficulties. This can help to improve the company’s relationships with its creditors and potentially make it easier to negotiate future agreements.

4. It can provide a sense of control: A CVA allows the company’s directors to take control of the situation and negotiate a plan for paying off the company’s debts. This can provide a sense of control and give the directors a greater sense of ownership over the company’s future.

As you can see, a CVA can be a useful option for a company that is struggling financially but believes that it has the potential to turn its fortunes around with some additional time to pay off its debts. It allows the company to continue operating while working to resolve its financial difficulties, and can provide a sense of stability and security for the company and its employees.

That being said, it won’t be an appropriate option for all businesses. Choosing the wrong option can result in serious financial and legal ramifications, making it important that you reach out to an insolvency practitioner as soon as you suspect your company may be facing serious financial issues.