When you open a company, you definitely want to get the best returns from it. However, sometimes things do not go as expected. Both internal and external factors can leave your business with many debts.
You can get your business back on the revenue path by considering various options. A Company Voluntary Arrangement (CVA) is one of the options you can pursue. Through a CVA, your company may agree with its creditors on how the huge outstanding debts can be paid and the payment period. Through a CVA, you will also have a chance to overhaul your company’s management as well as operations.
You should get help from a financial advisor before option for a Company Voluntary Arrangement. You can know the impact of the CVA on your business through the help of the financial advisor. It is crucial to know the pros and cons of a CAV to determine whether it is a suitable arrangement for your company.
Three of the main advantages of CVA include:
i)The directors remain in the company
In some cases, the top management may have played a role in the financial mess that your organization is in. However, despite this, the management can play an important role in making the CVA successful. You will need the directors to ensure the continuity of the business processes as the restructuring is going on. The management knows the “ins” and “outs” of the organization and their support will be important in the recovery of the company. When the management is retained and a professional financial advisor brought on bought, the chances of the organization overcoming its financial problems increase.
ii) Lower restructuring costs
When you are restructuring your organization to achieve its revenue objectives, you do not want to incur high costs. Compared to other restructuring options such as receivership and insolvency, setting up a CAV arrangement and managing it is affordable. With a CVA, no large cash sums are required to purchase business assets, as a pre-pack administration requires.
You will have to pay an upfront fee to set up a creditors’ meeting. However, the costs incurred in a CVA are usually deducted from the premiums that the creditors would advise you to pay. This means your business will have more cash flow and working capital.
iii) CVAs are kept private
The public nature of insolvency can affect your organization’s efforts for recovery. With CVA, the matter is not as public as liquidation. For instance, you do not have to indicate the debt restructuring arrangement in your company’s correspondence.
The above are some reasons why it makes sense to restructure your company debt through a Company Voluntary Arrangement (CVA).