CVA vs Selling Your Company

CVA vs Selling Your Company: Which Is the Best Option for Financially Distressed Businesses?

When faced with mounting debts and the looming threat of insolvency, directors of financially distressed companies often scramble to find the best way forward. Two popular options are a Company Voluntary Arrangement (CVA) and selling your company outright. But which is the better choice for your business? This article will compare the two approaches, exploring the pros, cons, and key differences to help you make an informed decision.

What is a CVA?

A Company Voluntary Arrangement (CVA) is a formal agreement between a company and its creditors that allows the business to repay its debts over an extended period, typically with reduced payments. A CVA is a legal process overseen by an insolvency practitioner (IP), who mediates between the company and its creditors to create a structured repayment plan.

A CVA can be an attractive option for directors who want to keep their business trading while addressing their financial obligations. It can help prevent a company from going into liquidation, giving it the opportunity to restructure its debts and recover gradually.

What Does Selling Your Company Involve?

Selling your company, on the other hand, involves transferring ownership of the business—along with its debts and liabilities—to a new buyer. This is often the preferred solution for directors who want a clean break from their financial troubles without the long-term commitment of repaying debts through a CVA.

At Fast Business Rescue, we specialize in buying financially distressed companies, offering a legal solution that relieves directors from their company’s debt burdens. Our service ensures that all company liabilities, such as Bounce Back Loans, HMRC debts, and unsecured debts, are transferred to the new owners, allowing directors to walk away without facing the harsh consequences of liquidation.

Aspect	Company Voluntary Arrangement (CVA)	Selling Your Company
Definition	A formal agreement with creditors to repay a portion of debts over time while continuing to trade.	Transferring ownership of your financially distressed company to a new buyer who assumes all liabilities.
Control	The directors retain control of the company but must adhere to a repayment plan.	Ownership is transferred to the buyer, and the directors exit the company.
Debt Liabilities	The company continues to pay its debts under the agreed CVA terms, typically over a 3-5 year period.	All debts and liabilities are transferred to the new owner upon the sale.
Time Frame	CVAs are long-term arrangements that typically last between 3-5 years.	The sale process can be completed within a matter of weeks, offering a faster exit.
Cost	CVA setup and administration costs can be significant, as an insolvency practitioner is required.	Low cost, with the sale usually completed for a nominal amount (often £1).
Reputation	Although less damaging than liquidation, entering into a CVA can still negatively impact the company’s reputation.	Directors can exit with their reputation intact, as the sale avoids formal insolvency procedures.
Personal Assets	Directors are protected from personal liability, but personal guarantees may still be called in.	Directors are protected from personal liability, and personal assets remain untouched.
Future Obligations	Directors must ensure the company adheres to the repayment plan throughout the CVA period.	Once the sale is complete, directors have no further obligations to the business or its debts.
Involvement of Creditors	Creditors must agree to the CVA terms, and any missed payments could result in the CVA failing.	Creditors have no say in the sale of the company; they deal with the new owners post-sale.

Advantages of Selling Your Company

Immediate Debt Relief: Selling your company provides instant relief from financial obligations, as all liabilities are transferred to the buyer.
Personal Asset Protection: Directors are protected from personal liability, safeguarding their homes, savings, and other personal assets from being targeted by creditors.
Quick Process: Selling your company is a legal solution that can be completed quickly, usually within a matter of weeks, offering directors a fast and stress-free exit.
Reputation Maintained: Unlike liquidation, which can damage a director’s professional standing, selling your company allows you to exit with your reputation intact. You avoid the negative stigma associated with insolvency.
No Long-Term Fallout: After the sale, the new owners assume responsibility for the company’s debts, leaving you free from future obligations or legal scrutiny.

CVA vs Selling Your Company