A company voluntary arrangement (CVA) is an insolvency solution for companies who are currently facing financial difficulty but could turn things around if they had the chance to trade out of debt.
There are a number of benefits to CVAs. For starters, interest and charges on debts are frozen, creditor action is halted, and repayments are consolidated into a single affordable monthly payment.
We recently discussed what to do if your CVA proposal is rejected, but what about if your CVA fails after it has been approved?
Read on to find out about what to do if you have a failed CVA...
Failed CVA FAQs
I’m finding it difficult to keep up with my payments. Should I contact my insolvency practitioner?
If you’re in an existing CVA and you’re struggling to make the payments, it’s important to contact your insolvency practitioner as soon as possible.
One of the most common reasons that CVAs fail is because people are struggling to make repayments. Your IP will have most certainly dealt with failed CVAs before and will be able to provide expert advice on what to do next.
But it’s important to act fast – the longer you bury your head in the sand, the worse things will get.
And what if I simply can’t keep up with repayments?
Failure to make the agreed monthly payments will constitute a breach of the CVA terms. This could land you in hot water and have huge consequences for the future of your company – and could even result in the CVA being terminated.
With a failed CVA, the debt is no longer bound to an agreement and will start accumulating interest again. Your IP will then write to your creditors to inform them that the programme has failed, and they will no longer be in charge of managing the debts bound by the CVA.
So, will the company go into administration if I can’t pay?
If you are struggling to manage your CVA repayments, remember that prevention is better than cure. Not being able to keep up the payments doesn’t mean that the arrangement will be stopped, and your business will automatically be liquidated.
Instead, if you act quickly, your IP will be able to see if they can agree to a variation of the arrangement and put together an amended proposal.
In what way will the CVA be modified?
The most common change is to extend the period the CVA runs for. A CVA typically lasts for 3-5 years, but this could be extended to 5-7 years, enabling you to pay a smaller amount over a longer period of time.
However, such modifications need creditor approval: the variations to your agreement, like the original proposal, will require 75% by value of voting creditors to agree to it, and if the new proposal is rejected, your CVA will probably be terminated.
Will I be personally liable for the debts?
No – it’s important to remember that CVA stands for company voluntary arrangement, which means there is no automatic transfer of debts to the individual.
Of course, it is possible that a director may have personally guaranteed the debts of the company, in which case they will become liable. But otherwise, as a company director, you won’t become personally liable for the debts.
Alternative solutions to consider
If your CVA fails, rest assured that there are still alternative options to consider depending on the individual circumstances of your business:
If your CVA has failed but you still believe your company has a future, there are alternative business rescue options to explore. Company administration, for example, involves an insolvency practitioner taking control.
Entering administration enables you to protect your company from creditor action, but there is a time limit of eight weeks in which to formulate a plan to rescue or restructure the business.
Alternatively, a pre-pack administration is when the sale of a company to a new company (sometimes called a ‘phoenix company’ is pre-arranged. In many cases, the assets are sold to existing management who can then set up a new company without debt.
However, there are a number of rules and regulations to consider, and it needs to be established beyond doubt that a pre-pack would provide the best outcome for your creditors in order for it to be approved.
Whilst you may really want your company to recover, it might be the case that this just isn’t possible, and sometimes, voluntary liquidation might be the only way to keep everyone happy and avoid compulsory winding up.
With a creditors’ voluntary liquidation, business assets will be liquidated, and the company will be closed down. However, providing the directors have acted responsibly, they are less likely to be accused of misconduct.
How McAlister & Co can help
If your CVA is failing, first and foremost, it’s important not to panic. The sooner you speak to your insolvency practitioner about the difficulties you are facing, the more likely they are to be able to find a solution.
At McAlister & Co, we are experts in business rescue and turnaround procedures and can help you to review the terms of your CVA or explore alternative options to rescue your business.
So, if you are facing financial difficulty and need professional advice or are struggling to keep up with your CVA repayments, contact us today for FREE confidential advice.