What Is a Company Voluntary Agreement

    0
    120

    As businesses face tough market conditions, sometimes they become unable to pay off their debts on time. In such cases, a Company Voluntary Agreement (CVA) is often the best option for debt management. A CVA is a legally binding agreement between a company and its creditors that enables the company to repay its debts over a period of time and avoid insolvency.

    In simple terms, a CVA is a way for a business to restructure its finances by agreeing with creditors on a payment plan, which is usually spread over a period of 3-5 years. This allows the business to continue trading while repaying debts in a sustainable way.

    The process of setting up a CVA begins with the appointment of a licensed insolvency practitioner who will work with the business to create a proposal that will be presented to its creditors. The proposal will detail how the company intends to repay its debts, which usually involves making regular payments to creditors over a set period of time.

    Creditors then have the option to vote on whether to accept or reject the proposal. For a CVA to be approved, at least 75% of the voted creditors, by value of debt, must agree to the proposal. If the proposal is accepted, all creditors are bound to the terms of the CVA, even if they voted against it.

    There are several advantages to a CVA over other debt management options. It allows a company to continue trading, avoiding the need for liquidation or administration. It also protects the business from legal actions taken by its creditors, such as winding-up petitions or court action. Additionally, a CVA offers a chance for a business to restructure its finances and return to profitability.

    However, it’s important to note that a CVA is a serious commitment that requires careful consideration. A failed CVA can lead to the immediate appointment of a liquidator and the closure of a business. It is therefore imperative to seek professional advice before making such a decision.

    In conclusion, a Company Voluntary Agreement is a debt management tool that offers businesses facing financial difficulties an opportunity to restructure their finances in a way that is agreeable to their creditors. It allows the business to continue trading while repaying debts over a period of time. However, it is imperative to seek professional advice before embarking on a CVA, as it is a legally binding agreement that requires careful consideration and commitment.