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COVID-19 Advice for business  - Company Voluntary Arrangements - news article image

COVID-19 Advice for business - Company Voluntary Arrangements

30 Mar 2020

1 minute read

The Government response to COVID-19 means that a vast amount of economic activity has been suspended, and many businesses will face the prospect of lessening, or even no turnover. While the deferment of tax and VAT liabilities and now rent and rates will potentially allow business the ability to pay staff and suppliers for the time being, it has not escaped our attention that this liability is deferred and, that the Business Interruption Loan Scheme is still a loan, which will eventually will need to be repaid. 

It seems inevitable that that the UK will leave the COVID-19 pandemic heavily in debt. 

If a company is insolvent because it may be unable to pay its debts as and when they fall due (‘cashflow insolvency’), or where its liabilities exceed its assets (‘balance sheet insolvency’), but the underlying business is ultimately sound, it can use a Company Voluntary Arrangement (CVA) to pay creditors over a fixed period. If the creditors agree, the limited company can then continue trading in accordance with the terms of the CVA. 

The steps in the process for a CVA are:

  • An appointed Insolvency Practitioner will work with the directors to put an ‘arrangement’ together which will include proposals for repayment of the company’s debts over a period of time
  • They will write to creditors about the arrangement and invite them to vote on it
  • The CVA is approved if 75% (by debt value) of the creditors who vote agree

The CVA could provide a means of bundling up a COVID-19 related debt and postponing payment to an agreed trading period whilst, keeping UK companies trading and ultimately contributing to rescue of UK PLC.

COVID-19 Advice for business  - Company Voluntary Arrangements - news article image

Author:

Karyn Jones

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