Did you know that half of all businesses fail after the five-year mark? If your business has hit some rocky times, you might be able to recover with the help of a company voluntary agreement (CVA). That way, if you’re faced with debt, you can get the help and structure you need.
Read on to learn the five things you should know about the CVA process!
1. Creditors Vote on CVA Proposals
If a company proposes a CVA, whether it moves forward hinges on the creditors. After all, with a CVA, the company will not be paying back the full amount of debt.
Instead, they’ll be paying what is possible over an extended timeframe that usually lasts around three years. For a CVA to move forward, 75% of the creditors need to approve it.
2. Directors Continue Controlling the Company
With voluntary arrangements, you won’t need to hand over control of your company to a third party. Instead, the current group of directors can remain at the helm.
In addition, there won’t need to be any probing into directors’ past behavior. In other words, the directors don’t need to worry about fending off accusations that the financial problems are their doing. Instead, they can tackle the primary goal of rerouting the company toward financial solvency.
3. Credit Ratings Take a Hit
On the downside, a company’s credit rating will take a hit during the CVA process. A company should prepare to scale back efforts and expectations as a result.
Obtaining contracts from new suppliers and other third parties won’t be as easy. And the company should plan on being careful with accounting efforts until their credit score improves.
4. A CVA Can Be Kept Private
Advertising that your company is having financial issues probably isn’t something you want to do. With a CVA, you don’t have to make it public. This is one of the key advantages of pursuing this type of approach to handling debt problems.
Ultimately, directors can make repayments over a reasonable amount of time. This is especially helpful if accounts are overdrawn. Directors will just need to be discrete to keep the CVA out of the spotlight.
5. A Company Faces Consequences for Breaking a CVA
What happens if your company fails to abide by the terms of the CVA? The consequences include the risk of losing assets to compensate for failed payments. A company will be at the mercy of what the creditors decide to do.
Turning to legal help, such as https://antonybatty.com/company-voluntary-arrangement-2/, can be wise during the CVA process. That way, you’ll have a complete legal guide to help you through the process. And a qualified legal team will understand the law and help you avoid liquidation.
Understand the CVA Process
The CVA process enables companies to find a path forward when creditors come knocking on the door. A company will need to write a proposal that earns approval from 75% of its creditors. And it will need to be prepared for a lower credit rating and challenging consequences if it doesn’t obey the terms of the CVA.
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