What Does CVA Mean? Why a CVA Matters for Your Business

what does cva mean company voluntary arrangement business debt repayment

Did you know that around 50% of small businesses fail after five years of being in business? With such a high statistic is it important to be familiar with certain financial terminology. Today, we are going to cover what does CVA mean and the benefits of CVA. 

Keep reading to learn all the ins and outs of CVA. 

What Does CVA Mean? 

First, let's answer what exactly does CVA mean. CVA stands for company voluntary arrangement, and it is a procedure that allows a company to settle its debts by only paying a portion of what they owe to their creditors in a case where the company becomes insolvent. 

A CVA is a legally binding agreement that once it is approved, the company can carry on and have a supervisor that is a licensed insolvency practitioner monitor the CVA. Usually, this arrangement will last between 3-5 years. 

If this all seems overwhelming and confusing we recommend calling a reputable professional to help you along this journey. 

How Much Is a CVA? 

The truth is that the cost depends on a few things such as the bank's position, the level of negotiation you need, the number of employees, and the number of creditors. A CVA at the end of the day is a deal and coming to an agreement when making a deal involves talking to all the people and stakeholders that are involved in the business. 

Keep in mind that if your company has its financial information organized and there is not a rush because of aggressive legal actions happening by creditors it will make the cost a lot less. The earlier you act the better it will be for your company and everyone involved. 

Benefits of a CVA 

There are quite a few benefits if you choose to go the CVA route. One advantage is that it will stop pressure from tax, VAR, and PAYE while the CVA is being prepared. A CVA can also improve the company's cash flow pretty quickly once it is implemented. 

Another pro is that it will bundle all of the money that is owed to creditors into one monthly payment that is paid to the supervisor in charge. With a CVA you will have much lower costs than opting for a Scheme of Arrangement or with an administration. 

Last but not least, you do not have to tell your customers at any time that your business is in a company voluntary arrangement. 

Cons of a CVA 

Although there are many benefits there are also a few cons when doing a CVA. Even though a CVA will not affect your own personal credit score, it will affect your company's credit score for six years. 

Another con is that some creditors will not be happy with the length that the CVA will take and might even disagree. You might also have a difficult time trying to obtain an agreement from the bank. 

If you have secured creditors they are not bound by the terms of the CVA which means that they can push for liquidation instead or they can even withdraw their funding in your company. If for some reason, the CVA proposal is not successful the directors of the company might have to take the option of voluntary liquidation. 

CVA Steps 

The first step of the CVA process is the proposal. This is where the licensed Insolvency Practitioner that is contacted for the case begins to create the arrangement and draft a written proposal using the company's financial affairs. The proposal is then reviewed by the directors and the supervisor begins writing to the creditors to invite them to vote at a creditor's meeting. 

Next, a moratorium can be applied to help prevent the creditors and suppliers from taking further action against the company while the proposal is under negotiation. During the creditor's meeting, each creditor has the opportunity to voice their opinions and concerns about the proposal they were given. 

Creditors have the choice of attending the meeting in person or voting by email or post. Keep in mind that the directors do not have an obligation to attend this meeting. 

If at least 75% of the creditors agree to the proposal that is presented then the CVA is approved. Once that goes through there is another meeting held for the connected creditors which include directors and employees. At least 50% of those connected creditors have to agree to the proposal for it to be 100% approved and finalized. 

The supervisor will distribute a report to the court and the creditors with all of the details of the meetings and the votes once the CVA has been approved. 

Lastly, the CVA will begin and your company will start to make the scheduled payments to the creditors through the Insolvency Practitioner Supervisor to repay all of the debt that was agreed on. 

Feeling Like a CVA Pro? 

Now that you know the answer to the question "what does CVA mean?" along with its costs and benefits you can make an informed decision if this is the best route for your own situation. There are multiple options out there for a business when they find themselves in financial stress

One of the best things to do is talk to an attorney to find out your options. Business debt repayment is a serious financial and legal matter and should be handled by professionals.

Did our blog post on company voluntary arrangements help you out today? Please feel free to continue browsing the rest of our site for some more helpful reads on debt repayment strategies and payment tools.

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