CVA Agreements: What They Are and How They Can Help Companies in Financial Distress
CVA agreements, also known as Company Voluntary Arrangements, are legal agreements that allow struggling companies to restructure their debts and avoid bankruptcy. CVA agreements are becoming an increasingly popular option for businesses facing financial difficulties, as they offer a more flexible and cost-effective approach than traditional insolvency procedures.
But what exactly are CVA agreements, and how do they work? In this article, we’ll explore the basics of CVA agreements and their potential benefits for companies in financial distress.
What Is a CVA Agreement?
A CVA agreement is a legally binding arrangement between a company and its creditors that sets out a plan for repaying existing debts over a period of time. The plan is typically proposed by the company’s directors and must be approved by at least 75% of the creditors by value of debt owed.
Once a CVA agreement is in place, the company is required to make regular payments to its creditors over a period of three to five years. During this time, the company is protected from legal action by its creditors and is able to continue trading and generating income.
However, it’s important to note that not all debts can be included in a CVA agreement. For example, secured creditors (such as those with a mortgage or charge over the company’s assets) are not bound by the agreement and may still take legal action if the company fails to meet its obligations.
What Are the Benefits of a CVA Agreement?
There are several potential benefits to a CVA agreement for companies in financial distress. Here are some of the key advantages:
1. Avoiding bankruptcy: By entering into a CVA agreement, a company can avoid bankruptcy and the associated costs and negative consequences.
2. Repayment flexibility: A CVA agreement offers more flexibility in terms of repayment than traditional insolvency procedures. The company can propose a repayment plan that suits its current cash flow and allows it to continue trading.
3. Reduced pressure from creditors: Once a CVA agreement is in place, the company is protected from legal action by its creditors, which can reduce the pressure and stress on the business.
4. Improved cash flow: By restructuring its debts and making regular payments, a company can improve its cash flow and regain financial stability.
5. Retaining control: Unlike some insolvency procedures, a CVA agreement allows the company’s directors to retain control of the business and make decisions about its future.
In conclusion, CVA agreements offer a flexible and cost-effective solution for companies facing financial difficulties. By restructuring existing debts and making regular payments over a set period of time, companies can avoid bankruptcy, reduce pressure from creditors, and regain financial stability. If your business is struggling with debt, a CVA agreement may be worth considering as a potential solution.