Where to begin

If your company is facing insolvency or is in any other kind of financial difficulty, there are a couple of options to help, CVAs and CVLs. 1st Business Rescue will be able to advise you what is best for your company. If you do decide to use either a CVA or a CVL, you will need to employ the services of a licensed insolvency practitioner.

Whatever arrangements are agreed as part of the CVA or CVL, the company will have to uphold its responsibilities, or the process will fail, and the company might be forced to liquidate. Read on for more information:

Company Voluntary Arrangement or CVA

A CVA is suitable if the company in difficulty is to be rescued because it allows debts to be repaid whilst the company continues to trade. Debts can otherwise be crippling and can stop cash flow completely, which could force the company into liquidation.

To enter into a CVA, you would need to appoint an IP who would assess the company’s financial situation and liaise with the creditors to mutually agree on a course of action. This would typically involve monthly repayments to the creditors and the business MUST meet these for it to succeed.

The key benefit of a CVA is being able to relieve the pressure caused by the debts owing to the creditors, allowing the company to continue trading and ultimately survive. Your company will need to be assessed to see if a CVA is a viable solution and one of our team will be able to advise you on this.

They are designed entirely to rescue companies so that they can continue trading in the same way within the same industry, overcoming any short-term problems they have encountered. If your wish is to keep the business open, a CVA could well be the right option for you, whilst easing the pressure felt from increasing debt. It’s a way of taking back control to continue with the business which has been built.

Choosing a CVA or a CVL

Creditors’ Voluntary Liquidation or CVL

Liquidating a company is often seen as the last resort for a business as it results in its closure, with assets being sold off. Whilst liquidation can sound a daunting term; it may be the most sensible option for an insolvent company. If this is the case in your situation, a CVL allows the directors to maintain a good deal of control over the process as it is voluntary rather than enforced by creditors via a winding-up petition.

The IP will assess the company’s finances and the directors’ conduct to evaluate the situation before the company became insolvent. If wrongful trading has occurred, there may be legal implications for the director, such as being disqualified as a director or even prosecution. Otherwise, a CVL process can begin with your IP acting as liquidator (or the courts might assign an ‘official receiver’). The behaviour of the directors can still be investigated throughout the CVL process.

The IP will take control of the business and close it in an ordered way to ensure that the company’s debt is written off. The directors will be able to disassociate with the liquidated company and start a new business if desired. However, if personal guarantees have been made or there is an overdrawn Director’s Loan Account, the directors involved might become personally liable for its debts. We will highlight at potential pitfalls or personal implications upfront so you fully understand your position.

A CVL is designed to close a business which has become insolvent due to a level of debt incurred, making it unviable to continue. One of the key benefits is that it allows the directors to maintain more control over their business’s closure than if the company was being forced to liquidate by its creditors.

Next steps

The directors need to agree as to what they want to happen with the business; whether it be to close it or continue trading if at all possible. A CVA will allow you to continue trading, if it is possible, whereas a CVL will enable you to cease trading and close your company’s doors formally. 1st Business Rescue will help get the advice that you need to be able to make a decision.

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