Creditors Need to be Empowered in Company Voluntary Arrangements

Company Voluntary Arrangements (CVA) can make creditors feel alienated and powerless, so they tend to accept whatever repayment deal is being offered to them.

A creditor with little knowledge of their democratic rights will see 30p in the £1 as better than nothing.

The majority of creditors are often ill informed, and many think if they don’t accept what’s on the table, their only alternative is nothing, and that’s not true.

Creditors need to start empowering themselves by joining forces and demanding the amount they expect to be paid back. 

The reality is, creditors can team up, block CVA proposals and ask for amendments.

This could include a request for the CVA to run for a shorter time (as opposed to five years), or pay a bigger dividend (such as 50pc rather than 30pc).

If you’re a creditor and your knowledge of the CVA process is limited, it’s important to seek independent advice.

Insolvency and Law has formidable experience galvanising creditors and helping them to get a better deal.

In seeking advice, creditors can also be alerted to when they’re being stitched up because some clever company directors pre-plan their CVAs.

For example, a company could trade for one year and purchase as many goods as they can on credit.

Then, they’d file for a CVA, propose for 70pc of the debt to be wiped away, and repay the remainder over the next four or five years.

So, the directors are not obliged to repay the full amount they owe and have five years to clear the balance.

Effectively, these businesses are given an interest free loan, and it’s all fully legal!

After all, who wouldn’t want to buy goods at 30pc of their true value?

That’s why some creditors are shocked to find themselves presented with a CVA proposal, despite their new relationship with a company.

If you’re a creditor you probably have more rights than you think. Find out by calling us today on 020 7504 1300.