In one of F. Scott Fitzgerald’s novels a character is asked “how did you go bankrupt?” and they famously reply “In two ways. Gradually and then suddenly.”
While few unfortunate businesses are at the point of actual insolvency – not being able to pay their debts when due – sometimes it can feel like this point is approaching, especially when several large repayments begin to fall close together or at the same time.
And while one creditor will be happy if you choose to pay their installment this month, they might not be in following months if you skip theirs in order to satisfy other creditors and eventually end up owing most if not all of them.
This is why a company voluntary arrangement (CVA) could be the answer to their problems.
A CVA sees a proportion of all owed debt written off in return for the business making regular, manageable payments on the remaining debt, usually over five years.
Entering a CVA will also freeze all legal actions being brought against the business – while an insolvency practitioner works on a plan to restructure the business.
If the business doesn’t keep up repayments then the CVA could fail and legal actions could begin once again for the remaining debt so it is vitally important that they are met and kept up to date.
The company could also choose to conclude a CVA earlier than anticipated if the financial situation materially changes too. It could then either enter administration or look to pursue a creditors voluntary liquidation (CVL) which would see it closed down and its assets sold to repay creditors.
If they can’t be maintained then the business could look at other insolvency measures including liquidation if there is no viable way forward for the business to survive and pay off its debts.
While not appropriate for every business and situation, a CVA can help buy a company time to repay its debts over a longer period while still trading which will ultimately be a better return for creditors than if the business was to close down.
In return for signing up for a five year commitment, a CVA brings certainty and stability to a problem which left unchecked would only grow until it eventually became insurmountable.
The first step to seeing if a CVA would be the right solution is to get some free impartial professional advice from a reliable source such as Business Rescue Expert.
After a free, virtual consultation with an expert advisor, business owners will be in a far better position to understand if the CVA is the right solution for them and their financial situation.
They would understand all the risks and responsibilities that would be involved, what the exit strategies are and how, if the situation changes, so can their strategy to match it.
After a reduction in the past couple of years due to the pandemic and economic restrictions imposed and now rescinded, CVAs could be the key to survival for many UK businesses in the weeks and months ahead.