CVA
The aim and intention of a CVA is to trade out of difficulty and ultimately escape financial decline. Company debt is repaid at an affordable rate within this formal structure, which also typically offers a better return for creditors.
The differences between a CVA & Administration process
If your company is experiencing financial difficulty there are various rescue options available in the UK that could help you avoid liquidation and closure. These include a CVA (Company Voluntary Arrangement) and company administration.
The more appropriate of the two procedures is established after a licensed insolvency practitioner (IP) has assessed your financial and operational situation. This professional review enables you to act quickly and make the right choices in the best interests of all parties.
So, what are the main differences between a CVA and company administration?
Intentions and potential outcomes
Administration
When a company is under extreme pressure from creditors, administration provides a ‘breathing space’ for the office-holder to make a recovery plan. This could lead to a Company Voluntary Arrangement in some circumstances but alternative outcomes are also possible, including the sale of the business and liquidation.
CVA vs administration: control of the business
CVA
A Company Voluntary Arrangement enables you to retain control of your company. Trade continues throughout the process, additional interest and charges on the debts are frozen, and as long as repayments are maintained, a CVA protects the business from creditor action. A fast track CVA speeds up this process further, allowing the business to move forward quickly and creditors to receive a proportion of their debt on a regular monthly basis.
Administration
When a company enters administration, control is immediately handed over to the administrator who decides the company’s future based on an assessment of its financial and operational situation.
Retaining customers and suppliers
CVA
CVAs allow for trade to continue so business relationships can carry on uninterrupted and existing customers and suppliers are retained. In some instances suppliers may demand a change in payment method to cash on delivery, but the pressure on company cash flow is relieved under the new debt structure anyway, and the company now only has one debt payment to make each month rather than numerous repayments.
Administration
Company administration can last for up to a year, but unlike a CVA the company may not be able to continue trading. This uncertainty makes it extremely difficult to retain customers and suppliers and look to the future with any confidence.
CVA vs administration: tax efficiency
CVA
The company can use previous years’ tax losses to reduce future tax liabilities when a Company Voluntary Arrangement is used.
Administration
If the company has accumulated tax losses from previous years they cannot be used to offset future tax liabilities, as a fresh tax period begins when a company enters administration.
Investigations into director conduct
CVA
A CVA doesn’t attract investigation into director conduct by the appointed insolvency practitioner, as the company continues to trade and is viewed as being viable for the future.
Administration
When a company enters administration, part of the administrator’s role is to carry out an investigation into the company’s decline. This involves looking into the conduct and actions of directors and in some cases can result in director disqualification if misconduct or other issues are uncovered.
Clearly, CVAs can be preferable to administration in many ways. A fast track CVA will help you overcome your company’s financial difficulties and rapidly get back on track. Please contact one of our expert team at Fast Track CVA to find out more – we offer free same-day consultations to quickly establish the best steps to take.
