Company Voluntary Arrangement (CVA) Advantages and Disadvantages
Advantages of a CVA
- You as a company director remain in absolute control of the day-to-day running and management of the business.
- The Supervisor will not is not investigate into the affairs of the company and unlike a liquidation the supervisor is not required to submit a report to the Disqualification Unit of the Department of Trade and Industry.
- A supervisor cannot bring fraudulent or wrongful trading actions against directors, nor can a Supervisor bring an action pursuant to S238, 239 and 212, transactions at an undervalue, preferences or misfeasance. Please refer to Directors responsibilities page within this web site.
- As a company owner/director a CVA will continue to provide you with an income.
- The existing management team are able to retains control of the business
- A percentage of the debt is usually forgiven or rescinded
- The company’s debts are spread over a period of time
- Less uncertainty for customers, suppliers and employees than liquidation or administration
- May be used to facilitate a restructuring programme – redundancy costs etc. are normally met by the National Insurance Fund (who rank as a creditor in the arrangement)
- Could be used to end onerous agreements and contracts – e.g. expensive leases
- Not all creditors need to agree to a CVA
- Binding on all unsecured creditors including HMRC.
- Creditors are prevented from legal action such as issuing a Winding Up Pettition
CVA Disadvantages
- The company’s credit rating will be affected
- Failure by the company to adhere to the terms of the CVA could eventually result in the company being placed into Liquidation or Administration
- The company is normally be prohibited from making dividend distributions to shareholders
- Often directors and other related parties are required to postpone any payment of amounts owed until after the CVA has completed successfully.
CVA Myths
- Your company will not be able to obtain supplies;
- HMRC do not accept CVA proposals;
- Funders will not support the business through the CVA;
- Creditors and Suppliers normally object to CVA proposals; and
- The vast majority of CVAs fail.