What is Company Voluntary Administration?

accounts

Company Voluntary Administration, or CVA, is a legal agreement settled between a company and its creditors.

Essentially, what CVA does is it helps companies repay their debt without going into to administration, thus avoiding declaring bankruptcy. The company will pay debts over a set period of time.

The agreement between the two parties is based on having a vested interest in preserving the company, rebuilding sales and profits and then, of course, the company will repay the creditors over the set period.

It must be the case that 75 per cent of creditors need to be in agreement and in full support of the CVA.

Once the agreement has been made, the company can carry on trading as they usually would, the directors can conduct their usual duties and the personal guarantees usually will not get called in, which will give the business the chance to survive.

Who can get a CVA?

A CVA can only be proposed if a company is insolvent or contingently insolvent. It will be monitored by a supervisor who will be a licensed insolvency practitioner. The arrangement will usually last between 3 to 5 years, depending on a number of factors. It is therefore a long-term form of lending, which works for both parties.

In fact, over the last few years, more and more restaurant chains have been going into company voluntary arrangement as a way to get their businesses back on track.



You can put your company into administration if it is in debt and cannot pay the money it owes. If you do put your company into administration, you will be protected from legal action by individuals or organisation’s who are owed money by you. But it does not mean that you do not have to repay your debts at all, just that you may not have to pay them back in full.

Why a CVA?

If a company is going to have a potentially successful future, the management and directors accept that change is in need in order to fight for the survival of the company. The appropriate funding must also be found, and this is where a CVA is a powerful tool.

Essentially, taking the option of a CVA means that a company can continue conducting business as normal with the help of external finances. It means that the company will not have to file for bankruptcy and therefore struggle to stay on their feet.

CVA gives companies the opportunity to get their finances back on track as well as improve their business. Since the CVA lasts for 3 to 5 years, this gives the company time to really get their money in check and pay off any debts whilst still functioning as a business.

Conducting a CVA can help businesses out by reducing rents, surrendering leases and above all, stay solvent.