www.company-debt.co.uk

[Adrian10]

I have been looking at the possibility of a CVA. What are the downsides that I should be aware of? Thanks for your help

[Derek Cooper]

Hello Adrian10 and welcome to the forum

A Company Voluntary Arrangement (CVA) can be an extremely good way of resolving a company debt problem. There should be minimal start up costs and the agreement will enable your business to write off a considerable amount of its debt.

However, there are some disadvantages that you should be aware of.

Firstly the credit rating of the business will be negatively effected. This will of course make it more difficult for the business to borrow in the future.

Secondly, if you start a CVA and are then unable to maintain the payments, your company will be at risk of being wound up.

As such, you should not enter into a CVA lightly. I suggest you discuss all of your options with a corporate expert before making a final decision.

[Steven Jackson]

Hi Adrian10

As Derek has said, if a company is in a CVA, its credit rating will be effected making borrowing more difficult. However, on top of this, the company may find it difficult to do business with new clients, especially business to business relationships. A corporate which is deciding whether or not to buy from a business may do a credit check as part of its due diligence process. If the credit rating is poor, this may influence the buying decision.

[Graham Wilson]

Hi there Adrian10

Another issue that is often overlooked when implementing a company voluntary arrangement is there is generally no requirement for any changes in management. Basically a CVA can be implemented and the company management team remains exactly the same.

This many not be the healthiest option especially if the management team continue to make the same mistakes which lead the business into problems in the first place. To overcome this, it is worth considering adding a new member of the team or an non executive director.

[Derek Cooper]

Graham makes an important point here Adrian10. If you go down the CVA route, I would certainly advise that you introduce new ideas to the management team whether that be in the form of a paid consultant or new member on the board of directors.