Is it expensive to enter into a CVA?
Entering into a CVA isn’t free, but compared to most other insolvency solutions it’s relatively affordable. A CVA also typically offers a better deal for your company and its creditors by ensuring creditors receive at least some of what they are owed.
The costs of proposing and entering into a CVA come out of the payments that your company makes to its creditors. This means that they won’t put a short-term strain on your company’s cash flow in the way a lump sum payment would.
How much debt can be written off with a CVA?
The amount of debt that can be written off with a CVA depends on your company’s financial situation and its ability to recover. CVAs are designed to be realistic and achievable, with repayments in line with what your company can achieve.
A CVA is not a free pass for your company to write off a large amount of its debt. In order for your company’s creditors to accept a CVA, your company will need to pay back a greater amount than creditors could recover through liquidation.
Can we use a CVA to avoid being wound up by HMRC?
Yes. If your company is under pressure from HMRC and can’t afford to pay arrears for VAT, PAYE and other taxes, it can propose a CVA. HMRC will consider the CVA and make a decision similarly to any other creditor.
Will proposing a CVA stop ongoing creditor pressure?
Proposing a CVA will bring an end to some creditor pressure. If your company has received a statutory demand from a creditor, proposing a CVA can halt the attempt to recover the debt and stop a winding up petition from being served.
However, a CVA cannot end all creditor pressure. If your company has received a winding up petition from a creditor and does not take action until the last minute, its options may be limited and proposing a CVA may not be able to help.
What effect will a CVA have on our relationship with creditors?
Most of the time, creditors will be disappointed that your company is unable to pay its debts back on schedule due to financial issues. However, many creditors view a CVA as a preferable alternative to administration or compulsory liquidation.
If your company has a viable path towards recovery and can repay most of its debts through a CVA, creditors will generally be understanding. However, entering into a CVA can and often will affect your company’s credit terms with its creditors.
How long does a CVA typically last?
The length of a CVA depends on your company’s financial situation and its ability to pay its creditors. Typically, CVAs last for between two and five years, although some CVAs can last for more than five years as a company pays its creditors.
How long does the process of entering into a CVA take?
The amount of time it takes to implement a CVA can vary based on the company and its creditors. Typically, it takes between four and 10 weeks to enter into a CVA, from preparing the CVA to the CVA being accepted by creditors and implemented.
What happens to our business once the CVA is over?
Once your company completes its CVA, it can continue trading as normal without its previous debts. If your company complied with the terms of its CVA and made all of its payments to creditors, its remaining unsecured debts will be written off.
Will our business lose access to credit after the CVA period?
Entering into a CVA will negatively affect your company’s credit rating, but it doesn’t mean your company can never use credit again. If your company returns to a strong financial position it will be able to work out credit terms with suppliers.
Can we keep trading as usual while proposing a CVA to creditors?
As company director, you’re required to act in the interests of your creditors in the event that your company becomes insolvent. If continuing trading is in the interests of your company’s creditors, the company should continue trading as normal.
Are we required to tell customers/clients that we’re in a CVA?
By law, your business does not need to tell its customers that it has entered into a CVA. However, it might be appropriate to inform large, important customers that your company is involved in a CVA to ensure they do not lose confidence.
Will our business lose customers/clients by entering into a CVA?
The purpose of a CVA is to preserve and protect your company while allowing it to continue trading to repay creditors. Since your business will be able to keep trading in a CVA, it’s unlikely that the arrangement will cause it to lose customers.
Will entering into a CVA affect our relationship with suppliers?
It’s possible that your company may lose access to suppliers, particularly suppliers that provide it credit, by entering into a CVA. However, many suppliers will be able to understand the company’s situation and continue a working relationship.
Can a CVA be amended after it’s approved and implemented?
If your company fails to achieve its objectives after entering into a CVA but still has a viable future, it may be possible to amend the CVA to cover a greater amount of time or allow your company to make a lower monthly payment.
In order to amend a CVA, a second creditors meeting is held and creditors will vote to approve or reject any amendments to the original arrangement.
What are the alternatives to entering into a CVA?
Although a CVA is usually the best option for a viable but insolvent company, it isn’t the only option. Common alternatives to a CVA include administration and pre-pack administration, as well as emergency loans and financing options.
If your company is unviable, it will not be able to enter into a CVA with its creditors and should pursue an alternative such as creditors voluntary liquidation.
Learn more about CVAs
- Advantages and Disadvantages of a CVA
- Alternatives to a CVA
- How Does a CVA Work?
- What Happens if a CVA Fails?
- What is a CVA?