Choosing a company voluntary agreement (CVA) is a suitable option for many construction companies facing insolvency. We cover the stages of this process and everything else you need to know about CVA for construction businesses below.
What is A CVA And Why Should Construction Companies Consider It
A CVA is a specific type of formal insolvency process that construction companies can use to avoid liquidation, allowing continued trading. If your company is unable to pay back its debts as they become due, a CVA offers a solution where a portion of the debt is paid back over a specific period of time. Instructing a licensed insolvency practitioner is a requirement for CVAs.
There are many reasons why you may be considering a CVA as a construction company. These can include:
- Cashflow gaps due to staged payments
- Late payments and retention issues
- Rising costs of materials and labour
- Delays and disputes in ongoing projects
- HMRC arrears for VAT, PAYE or CIS
- Thin profit margins
How a CVA Works for Construction Businesses
How a CVA Works for Construction Businesses
CVAs are a multi-step process that requires crucial work upfront by yourself and your qualified insolvency practitioner to successfully reach an agreement with your creditors. The steps for a CVA include:
- Initial assessment: Your insolvency practitioner will examine your business in detail to determine if a CVA is the right fit for your financial circumstances
- Drafting a proposal: In-depth information about your finances is included in your proposal to creditors, including disclosure of all assets and liabilities, forecasts, a financial summary and a proposed repayment schedule for debts
- Creditor decision: Creditors are able to read your proposal and then hold a vote in the creditors’ meeting, where agreement above 75% by value of claim is needed for approval to make the CVA legally binding.
- Implementation: Following approval, the CVA is supervised by your insolvency practitioner, with all agreed contributions provided to them for distributions to creditors
What Debts Can Be Included in A CVA?
A range of different debts can be included in a CVA. These include:
- Debts owed to HMRC, such as PAYE, VAT or CIS
- Money owed on supplier invoices
- Subcontractor payments
- Lease or equipment finance if an unsecured creditor
If you are unsure if a specific debt is covered under a CVA, speaking to qualified experts is the best place to start. A licensed insolvency practitioner will be able to tell you which of the available construction company debt solutions is suitable for your circumstances.
Key Benefits of a CVA for Construction Companies
A CVA can be beneficial for a business compared to administration or liquidation, as this insolvency process allows continued trade and directors to stay in control. This means the construction company can remain open, using a proportion of incoming profit to pay off debts. Some of the other benefits of a CVA include:
- Protecting ongoing projects by retaining control of the company
- Avoiding liquidation resulting in business closure
- Consolidating multiple debts into an affordable payment plan
- Potential opportunity to renegotiate supplier terms
Risks and Challenges of a CVA
While a CVA can be beneficial to your business if the alternatives are liquidation or administration, this is still an insolvency process. This means there are some downsides to a company voluntary agreement that are important to consider, including:
- Cashflow discipline: If your discipline in handling money coming into your business isn’t tight enough, this may result in missed payments, which is a serious breach of the legally binding contract you have in place – potentially leading to its termination
- Risk of failure: If your forecasting is unrealistic when you submit your proposal to your creditors, this can result in failure of your CVA and could lead to your business entering liquidation
- Damaged relationships: Suppliers placed in a CVA may be less willing to have a positive relationship with your business in the future, which can impact their willingness to extend credit or offer discounts
- Credit rating impact: A CVA will have a direct impact on your credit score, leaving your business unable to access many lines of credit or credit options from suppliers
- Personal responsibility: If you are a company director, you will continue to have a high level of responsibility both for the success of your business and also for the implementation of your CVA with your licensed insolvency practitioner
Is a CVA Right for Your Construction Company?
Deciding whether a CVA is the right fit for your construction business is the first step in the process. The factors you should consider before making your decision include:
- Whether your core business is profitable
- Whether your issues are cashflow-related, rather than structural
- Whether you have secured or ongoing contracts
- Whether your creditor pressure is increasing but currently manageable
In certain situations, a CVA would not be the right fit for your business. These circumstances include:
- Whether you have no forward pipeline of work to make your business profitable
- Where you have severe disputes or contract losses
- Where your business is fundamentally unviable
Seeking expert advice will help you to determine if a CVA is the right choice for your construction company. Speaking with a licensed insolvency practitioner and examining your finances in detail is a good starting point. Your chosen practitioner can provide personalised advice on whether a CVA is right for your situation.
Could A CVA Work for Your Construction Firm? Contact Our Team Today!
If your construction company is facing insolvency but you would like to continue trading, a CVA may be the right option for you. Griffin & King have more than 40 years of experience supporting businesses like yours to make the best decision for their circumstances.
As licensed insolvency practitioners, we use our expertise and knowledge of insolvency processes to help businesses with CVAs, liquidation and administration. Get in touch today or call on 01922 772 205 to speak with our team.
