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Is your client’s business facing financial distress? A Company Voluntary Arrangement (CVA) might be an option

As the crisis caused by COVID-19 continues, businesses continue to face unprecedented challenges.

Many companies are experiencing financial distress caused by a fall in trading activity, cash flow suffering as customers cannot afford to pay invoices on time offices and work premises being closed or restricted etc. Whatever the cause of financial distress it is imperative that issues are addressed immediately.

If you have a client which has viable business but is suffering cash flow issues as a result of the coronavirus, a CVA could be an option.

What does a CVA involve?

A CVA is a formal compromise agreement made between a company and its creditors which usually results in an agreed monthly payment plan, or some other form of settlement, which 75% in value of unsecured creditors (who choose to vote) must agree to. If approved the terms are legally binding on all parties included in the proposal whether they chose to vote or not.

Each proposal is bespoke but the benefits of a CVA is the ability for a company to continue to trade to improve overall profitability.

Simply, a CVA gives a business breathing space from immediate creditor pressure affording it the opportunity to trade its way out of difficulties rather than succumbing to them.

What are the other benefits of a CVA?

If action is taken quickly enough, a CVA can prevent a winding-up petition from taking effect as it offers reassurance to the creditors that some of the debt will be repaid.

At the moment with many businesses remaining closed and staff furloughed a CVA could be an attractive option to creditors and ensure the survival of the business in the long run.

A successful CVA is one which offers creditors maximum returns yet is set at a sensible level for all parties, so if you have a client with a business which is viable but is in financial distress a CVA is one option.

If you would like to discuss a CVA or any other form of business recovery or restructuring strategy, get in touch, email enquiries@cowgills.co.uk and one of the team will be in touch.

Disclaimer

The information was correct at time of publishing but may now be out of date.

Business Recovery
Posted by Jason Elliott
3rd August, 2020
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