A company voluntary agreement (CVA) is a common option for hospitality businesses facing difficulties repaying debt. We cover all the information you need to know about CVA for hospitality businesses below, including the benefits of this insolvency procedure and how it works.
What Is a CVA?
A CVA is a formal insolvency process that offers a way for hospitality businesses to stay in operation despite being unable to pay back due debts. With a hospitality CVA, a legally binding agreement is made between the business and creditors, where a specific amount of the owed debts is paid back over a defined amount of time. A licensed insolvency practitioner is required to supervise this process.
Why Hospitality Businesses Use CVAs
CVAs are one of the most popular hospitality business debt solutions, as they allow the company to remain trading rather than being liquidated to pay off debts. Rising costs, including rent, energy, supplies and staffing, are all common reasons why hospitality businesses may use a CVA, particularly if there is pressure from a landlord or supplier. Many hospitality businesses are also seasonal, which can be problematic in paying off creditors.
How a CVA Works in Practice
If a CVA is the right choice for you, there are several stages you need to follow to complete the process. These include:
- Choosing and working with a qualified insolvency practitioner to determine the viability of a CVA and get an overview of all of your debts
- Writing a proposal, a formal document created with the help of your insolvency practitioner that includes a financial summary, disclosure of assets and liabilities, forecasts and a proposed repayment schedule
- Creditors voting in a meeting, where at least 75% threshold needs to be reached for approval – at which point the CVA becomes a legally binding contract
- Implementation of the CVA, where monthly agreed contributions are paid to the insolvency practitioner, which is then distributed to the creditors until the CVA is completed
Benefits of a CVA for Restaurants, Bars & Hotels
Choosing a CVA can be beneficial to you as a restaurant, bar and hotel owner when considering different routes due to insolvency. Firstly, a CVA is an alternative to liquidation, allowing it to keep trading. Choosing this type of process can also reduce debt burden and allow you to renegotiate rent and leases.
Is a CVA Right for Your Hospitality Business?
In some cases, a CVA may not be a suitable option for your business. It’s important to look at all the facts to determine if a CVA is the right choice, including the following:
- If your core business can successfully make a profit and is therefore viable
- If your financial strain is temporary rather than an ongoing problem
- If you have pressure from creditors, but your business is unlikely to collapse.
Speaking to insolvency specialists can provide insight into whether a CVA fits the needs of your business. A licensed insolvency practitioner will examine the significant aspects of your business, including your trading history and forecasting, and advise you on if a CVA is a suitable choice for you.
Would A CVA Work for Your Hospitality Business? Get In Touch Today
If you are facing insolvency as a hospitality business, a CVA may be a feasible solution. At Griffin & King, we have more than 40 years of experience in solving financial problems for businesses, offering regulatory insolvency options for companies like yours. We can help you with your CVA.
Get in touch with our team today or call 01922 722 205 to discuss if a CVA is the best choice for you.
