Managing your way through a CVA

Managing your way through a CVA

A Company Voluntary Arrangement is a legal agreement to pay a company’s debts over a period of time in manageable payments, but the granting of a CVA is really only the start of the process. Managing a company whilst in a CVA requires some specialist skills that directors need to develop pretty quickly.

It’s important to note the difference between a CVA and Liquidation or administration. In the case of the CVA the directors retain control of the company and the firm stays intact whilst in the other cases control is handed over to the insolvency practitioner appointed. This means that the directors will have responsibility of making payments during the CVA and keeping the business in good shape so that it can exit in the future.

The first task of the managers following a CVA being granted is that of communication. If your advisor has done their job during the pre-court process you will already have communicated to employees, landlords and suppliers that you are considering the option. Keeping the lines of communication open will ensure that your staff feel more secure that the situation is being managed and you landlords and suppliers are more likely to support you post court. Give people clear and understandable facts with no waffle. Don’t try to pull the wool over people’s eyes as you’ll be found out and lose their trust as a result.

During the CVA process you’ll have produced a business plan. This will have included targets and waypoints that would show any interested party how you intend to pay back the money your company owes. Now is the time to work the plan. If you don’t then you face a risk of action somewhere down the line. Thinking that business can simply go on as before is a risky option because it was that way of operating that got the firm into trouble in the first place.

There is no requirement as part of a CVA for directors or managers to be replaced but it may well be time to make changes to the executive team. If nothing else it may be an idea to bring in strong directors used to working under strict requirements.

It is important that managers and staff understand that companies don’t go into a CVA because they have done everything right. There has to be a good amount of soul searching and an honest appraisal of what went wrong so that you won’t make the same mistake again.

When your business gained agreement to the CVA it was on the back of a fully featured business plan yet many businesses have trouble producing information to monitor their progress. Make sure your business puts in place detailed management information reporting and it will make understanding your business and how your CVA is progressing much easier and more accurate.

Beefing up your finance function will be vital if you are to exit your CVA in good shape sometime in the future. A top quality Financial Director or Financial Controller (depending upon the size of your business) will be able to put in controls and checks to make sure you are not spending more than you should. Often a good finance professional will be able to save many times their own salary just be renegotiating key contracts. At the same time your cash flow will be absolutely vital as you’ll have CVA payments to make during the term of the agreement. Qualified and experienced accountants will be able to produce a forward cash flow to make sure that the money will be available to pay your creditors in the future. Make sure though that you choose a strong professional as without doubt there will be times when they have to tighten the purse strings and say no to the directors themselves!

Managers who have worked through a CVA will often say that retaining key talent is a harder job than in any other business. If your communication has been done well then it should be a little easier but there’s no doubt that staff are bound to feel a little uneasy even if the process has been well explained. It’s also true that money for investment may be tight, especially in the early days. Making sure that key people feel included in the decision making and are in full possession of the facts ensures that they have more of a stake in the health of the business.

The final thing that managers must do is to actually make the CVA payments in full and on time. This is no time for playing fast and loose with the truth or thinking that it won’t matter if you are just a few days late. Get the payments made correctly and as agreed otherwise your creditors could go back to court and get your firm wound up.

The process of managing a company through a CVA doesn’t have to be a difficult one, but it does require a good amount of discipline and understanding of the business to ensure that the CVA can be paid off in full and on time, leaving a healthy business that will go on to prosper in the future.

 

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