Company Voluntary Arrangement 101
Company Voluntary Arrangement 101
It is not uncommon to see businesses and companies close shop. There is no surefire formula to keep any business from floundering. Poor management and negative cash flow problems that can cause a business to experience financial difficulties can be easily dealt with. However, events such as natural calamities and a slump in the market are beyond the capacity of any business owner to overcome.
Business owners who experienced financial nose-dive can go bankrupt without realizing that another option is available to save their business. This option is the Company Voluntary Arrangement. A company voluntary arrangement is primarily a contract between a financially distressed business and its creditors. A CVA is an advantageous solution both for the business owners and for the creditors. Through a CVA, the business owner will be able to hold on to his business and the creditors on the other hand will be able to collect at least a portion of the money owed. The main objective of a company voluntary arrangement is to bring back the business to its healthy financial footing and to revive its profitability.
For a CVA to be considered, a business has to have the potential to regain its financial standing and to recover for profitability once more. In a CVA, the business owner or manager will still remain in control and continue running the business. However, some changes with regards to running the business will be adopted to maximize its profitability. The creditors will be paid once the business is back on its financial standing because a portion of the profits will be used to pay outstanding debts.
A CVA is not an informal arrangement between a financially insolvent business owner and his creditors. A business owner who believes that the business has a chance to survive will contact a legal CVA professional to start the CVA process. Before a CVA is written, the legal CVA operator or an insolvency practitioner (IP) will come to the site of the business to gather facts and find out the causes of the business failure. The IP or the CVA operator may suggest changes that can make the company more stable. If the CVA operator or the IP deems it necessary, then a CVA will be written and submitted to the county courts and then forwarded to all the creditors. For a CVA to be approved, a 75% in favor votes by the creditors is needed. A second vote process is necessary, this time by the shareholders of the business. A 50% in favor votes of the shareholders will send the CVA on its way.
A company voluntary arrangement is a long and exhausting process that can take its toll on the nerves of most business owners. On the other hand, a CVA can be considered as the ultimate solution a struggling business owner can take especially if he is certain that his business still has the potential of regaining its good financial standing and the capability. CVA is also a way to give the business a new start; the business owners a second chance to succeed.
