Fast-track CVA: when only a supercharged company recovery will do

As contractors endure gale-force winds triggered by Covid-19 which batter down on company cashflow and once-exemplary balance sheets, many of them who are company directors themselves are being blown between pulling the plug on their businesses or seeking recovery.

So as we near the first one-year anniversary of livelihoods that were propped up by millions of small businesses being shaken due to the pandemic, company overheads are unfortunately continuing to pressurise, and outstanding liabilities aren’t going anywhere but the shelf, despite such business soloists feeling totally left twisting in the storm from official covid support (tailored to them), being threadbare.

Here, exclusively for ContractorUK, and in a nod to the 630,000 businesses-owners who are now officially in significant financial distress, Julian Pitts of Fast Track CVA outlines a tried and tested turnaround solution which can facilitate a recovery under time-sensitive conditions.

Warning signs to look out for

If your company cash pool becomes stagnant and concerns around fulfilling essential financial commitments become all too real, quickly sourcing a remedy can prevent your limited company from further deteriorating. Your personal horizon should be factored in too.

For example, private sector IR35 reform remains very much scheduled for April 6th unlike the covid-19 trading restrictions, which currently have no definitive end date in sight.

It seems company rescue is therefore going to be a New Year’s resolution that reluctantly, the UK’s smallest of companies cannot afford to dismiss.

From what we are seeing, the gap in the government’s covid support which PSCs (among others) have fallen straight through represents a double-blow, when considered next to IR35. The dual-effect has been to knock many enterprising contractors totally off course. Pursuing a Fast Track Company Voluntary Arrangement can stabilise your limited company however, and if meticulously timed, can even provide relief by actively tackling the problematic roots under your business.

All talk – and action

Although there are many outgoings which PSCs should knuckle down on in the current climate, the viability of your business essentially rests on the heads of creditors. Negotiating an optimum balance between income and expenditure may feel beyond reach unless you are in the firing line of being shot down by creditors due to the accumulation of debts.

A Company Voluntary Arrangement  is a restructuring solution which can repair your financial position with creditors by striking a payment compromise.

Known as ‘CVA’ for short, the arrangement is an insolvency procedure specifically prescribed to businesses trapped by creditor pressure. If a revised repayment plan with creditors can revive your company, this might provide a lifeline.

Positively, seeking this formal rescue route can soften the stance of creditors, as in reality – failure to arrive at a mutual agreement could result in nil returns for the creditor in the event of company liquidation. Taking into consideration the current covid-19 trading climate, the slowdown of the economy and the thrashing on of IR35 reform and Brexit, ramping up time efficiency may be instrumental in securing a realistic payment agreement with creditors.

So what exactly is a Fast Track Company Voluntary Arrangement?

Generally, a CVA is pursued by limited companies with no other means of survival than to approach creditors face front. Under the guidance of a licensed insolvency practitioner, you may be able to consolidate revised payments into a single monthly instalment.

If the success of your company is likely to be short-lived without immediate support, a ‘Fast Track’ CVA is a supercharged CVA procedure, conducted in as little as six weeks. Once the Fast Track CVA is agreed upon, the actual agreement term will last between three and five years.  

If you initiate this process, the insolvency practitioner will devise a repayment plan which restructures company expenditure, taking into consideration how much you can realistically repay per month.

Once revisions are made under the instruction of cooperative creditors, the CVA will be legally enforced. The payment plan will consist of making one monthly instalment to a trust account overseen by your licensed insolvency practitioner. Once received, this will then be distributed to creditors as agreed.

Clear skies ahead, right?

Taking note of the intricacies of the route, for the CVA proposal to be approved, 75% of creditors by value should agree to it.

Also, when entering a Company Voluntary Arrangement, all legal action against the company with halt. But if you fail to comply with the arrangement as you cannot realistically afford payments, the legal action will resume.

Finally, if your company has no chance of a viable future, even after calculating lower monthly outgoings, the storm may fail to pass without you turning towards company closure. As a CVA offers a lifeline to limited companies in crisis, it’s not a decision which is lightly taken due to the attached long-term commitments. So when in doubt, talk it out – ideally with an expert in the field whose track-record you can verify beyond doubt.