The managers’ guide to a CVA

Posted on 20 Jul 2016 by

When a company faces difficulties it may take the option of going down the Creditors Voluntary Arrangement route. This is a way of reaching an agreement with organisations who are owed money about how and when they’ll get paid.

Although this is by no means the end of the company, going through a CVA is often a worrying time for directors and staff alike and there are a few things that are probably worth thinking about.

Up to the point where a CVA is granted the business has probably suffered pretty serious creditor pressure and may have even had court documents served or visits from bailiffs and collection agents.

Once the CVA process begins this pressure will ease and it will be tempting for staff to think that everything is now OK. One of the key differences between a CVA and liquidation is that the former directors will probably stay in charge and it may seem that little has changed. But a CVA is a legal agreement to pay debts and the business will be presented with a payment schedule that it will need to adhere to.

As a director or manager, staff will be looking to you at this time to provide a lead and the first way of showing that things are in hand will be by communicating honestly, clearly and quickly with people about exactly what is going on.

Gathering together your team, whether that be in person or if they are more widely spread in teleconference, to tell them what is happening and how the world will look in the future is probably one of the earliest jobs that need to be done.

Keeping hold of the best talent will often prove to be a challenge at this time as people look to move to a company that they see as a safer long term bet. Reassuring staff and hand holding people so that they don’t feel the need to look around is a really helpful and practical task that managers can carry out.

The company also needs to think about how it communicates with its external stakeholders.

Throughout the CVA negotiations the directors will have been in contact with key suppliers such as landlords and shareholders to let them know what is planned and gain their agreement. It’s important to remember that many legal agreements such as leases contain clauses that make it void in the case of a creditors’ agreement. It may be necessary to renegotiate some contracts to ensure continued service is available.

Customers may also be unsettled by any news that has appeared in the media regarding a CVA. Now more than ever news travels quickly and key customers might have to be spoken with and assured that their supply is protected and they needn’t worry. For businesses that tend not to have key customer such as retailers then it is a good idea to show that it is largely ‘business as usual’.

Whatever course of action the directors and managers choose it is key that the company is all on the same page and a consistent message is projected outwards. It may be helpful to take the advice and help of a PR company at this stage.

As part of the agreement process a business plan will have been produced as a way of showing creditors that the company could successfully trade out of temporary difficulties.

Often there is a requirement that the company report against this plan and finance staff will need to ensure that they have the ability to produce the correct format of report as and when needed.

At the same time operational staff also need to understand that the company has to stick to the agreed plan. Immediately going ‘off piste’ and effectively tearing up the agreement is a sure way to incur the wrath of the administrator and creditors alike and may cause them to go back to the courts.

There needs to be a collective understanding that things cannot continue as they were before and managers need to engender this change in mindset to ensure that the company doesn’t end up in the same mess it did previously.

This change of mindset may need to extend to key personnel. Although there may have been no specific need to change directors within the CVA, the company might judge that it is worthwhile to bring in some heavyweight experience to beef up the senior management teams and board.

An honest and straightforward appraisal of where the company is and how it got itself into trouble is needed. This may extend to ensuring that the right people are in the right jobs.

A key part of this will be to have a strong finance department that is able to keep an eye on costs, ensure that cashflow is kept positive and can provide timely and effective reporting for managers to see them through the CVA term.

Managers need to assess whether they have the right people and the correct level of experience and training in their employees, not just from the finance department but across the organisation.

Missing payments into a CVA is a definite ‘no-no’. Certainly in the early days creditors and the CVA administrator will be keeping a close eye on how the company behaves.

Sticking to the agreement is vital. Directors should ensure that they stick to the terms of the agreement, they report on time and in full and of course that they make the payment in full and by the due date. The old excuse that the cheque is in the post won’t wash here.

Although this may seem like a really bad point in the existence of a company in fact for managers it provides both a great opportunity to reassess the business model from the ground up and gives them some incredibly valuable experience that will hold them in good stead later.

For the business having key people in place who understand the plan and the CVA process will ensure that it is able to go through the agreement and come out the other side a better organisation that is fit for purpose. Brought to you by Sochall Smith the Leeds Accountants

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