Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
CVAs don’t always succeed. In fact, only about 30-40% of CVAs are completed as originally proposed.
Common causes of failure include being unable to make the agreed monthly payments, failing to pay HMRC liabilities, or breaching other terms of the arrangement. I’ve also seen CVAs fail due to overly optimistic financial forecasts, or a simple underestimation of the working capital impact the process brings with it.
If you’re struggling to meet your CVA obligations, it’s vital to act quickly. Ignoring the problem won’t make it go away and could lead to more severe consequences. Remember, a failing CVA doesn’t automatically mean the end of your business, but it does require immediate attention.
In the following sections, I’ll explain your options and the potential outcomes you might face.
Your company loses the legal protection against creditor actions
All debts included in the CVA become immediately due and payable in full
Interest on debts, which was frozen during the CVA, starts accruing again
Your CVA supervisor must inform all creditors
Once creditors are notified of the CVA’s failure, it’s likely they will resume or intensify debt collection efforts, potentially including legal action. There’s also a risk they might petition for your company to be wound up, which could lead to compulsory liquidation.
I strongly advise seeking professional advice at this stage. An insolvency practitioner can help you understand your options and the potential implications for your company and you as a director. We can also assist in communicating with creditors and exploring alternatives to liquidation if your business still has viable prospects.
What are the Options After CVA Failure?
When your CVA fails, you need to act quickly to address your company’s insolvency. In some cases, you may be able to negotiate informal arrangements with creditors, but these will not be legally binding, so there are risks involved.
In terms of formal insolvency processors, you have several options to consider:
Pre-pack Administration: This involves selling your company’s business and assets to a new entity, often under the same management. It can allow the business to continue trading without the burden of old debts.
Creditors’ Voluntary Liquidation (CVL): If your business is no longer viable, a CVL allows you to close the company in an orderly manner. It demonstrates to creditors that you’re taking responsible action.
Company Administration: This provides a period of protection from creditor action while an insolvency practitioner attempts to rescue your company or achieve a better result for creditors than immediate liquidation.
Each of these options has different implications for your company, its creditors, and you as a director. The most appropriate choice depends on your company’s financial position, future prospects, and the attitude of key creditors.
Implications for Directors
As a director of a company whose CVA has failed, you need to be aware of the potential personal implications for you personally.
If your company enters liquidation, the appointed Insolvency Practitioner (IP) will conduct a thorough investigation into your conduct as a director. This is a standard part of the liquidation process and is required by law.
The IP will examine your actions leading up to the insolvency, including the period of the CVA and its failure. They’ll be looking for any evidence of wrongful trading, transactions at undervalue, or preference payments. If misconduct is found, you could face serious consequences.
It’s essential you understand that your duties as a director shift when your company becomes insolvent. Your primary responsibility becomes minimising losses to creditors, rather than acting in shareholders’ interests. Keep detailed records of all decisions and the reasons behind them, as these may be crucial during the IP’s investigation.
Expert Advice
If you need help understanding the best way forward for your company, don’t hesitate to reach out. Use our live chat during working hours for immediate assistance, or call us on 0800 074 6757 for a confidential discussion about your options.
We can help you navigate the complexities of your position and ensure you’re taking appropriate action to protect yourself during this challenging time.
