Debt and Debt Consolidation

In times of recession, it can be hard for businesses to make sure that they are making enough money to pay all their creditors. With less money coming in, and more going out, debts can soon begin to pile up. Once a business’s liabilities exceed its assets, it becomes insolvent, and action needs to be taken to ensure creditors are paid, and the business survives. One of the preferred options might be a Company Voluntary Arrangement.

A Company Voluntary Arrangement is a formal arrangement between a business and it’s creditors. It sets out how the debts are to be repaid, whether in part or in full, and over how long the repayment will take place. Once agreed, there are a number of benefits to a company of having a CVA in place, as long as they stick to the terms of the arrangement.

Company Voluntary Arrangements are often the preferred option for businesses in trouble, because they will still be able to operate, as long as they comply with the terms of the CVA. How much money they have to repay could also be less than the full debt, and the CVA is a better option for creditors than liquidation, where they might actually recoup a significantly smaller amount of the money owed to them. A Company Voluntary Arrangement also means there will be no additional action taken by creditors to recover their money, as long as the company meets the terms of the Arrangement. A CVA is also a much less expensive than if the company chose to go into Receivership or Administration.

A business needs at least 75% of the people it owes money, to agree to a Company Voluntary Arrangement for it to become a legally binding arrangement. Once this happens, the other 25% of creditors are also covered by the Arrangement, whether they voted for it or not. A CVA needs to be a fair offer to creditors, to pay back as much as is possible, while still ensuring the long-term viability of a business. This is why it is important to try and make sure a Company Voluntary Arrangement works for all parties.

While many businesses might see Company Voluntary Arrangements as a last resort, they are usually a much better alternative for companies and creditors, than Receivership or Liquidation. CVAs are designed to give companies some protection while they rebuild their business, and at the same time, make sure that creditors receive a reasonable amount of the debt that is owed to them. You should always get advice on problems with business debt, and whether a CVA may be the appropriate solution, as soon as you possible, to make sure you can take advantage of all the options available to you.

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