Company Voluntary Arrangement

In business you will likely be asked to give credit. Whether you do so is a matter for your judgement on the company concerned. Usually each request for credit should be judged on its individual merits.

Some companies offer a no credit policy and others are in a business in which no credit is expected - an ice cream vendor for example.

The problem is there are many limited companies out there applying for credit which may not be in a position down the line to make the agreed repayments.

Companies in financial trouble may keep the official liquidator / official receiver at bay by entering a special legal status known as Company Voluntary Arrangement. This special status stops creditors enforcing payments for sums owed prior to the company entering CVA.

In fact the powers of a CVA are vast. CVA's allow the termination of supply contracts, leases, employment and in some cases the writing off of debt.

A company in CVA may continue to ask for credit past the point of entering CVA.

For a CVA to come into force the creditors must vote in favour at a threshold of 75%. You may think that this is a high level to achieve and that most company attempts to enter CVA would fail at the vote but this is not the case. In fact most company's in this position will enter CVA. This is because the vast majority of creditors will vote in favour of a CVA in the anticipation of getting at least some of their money due. In reality this is not really a certainty as usually CVA's are applicable over a period of many years and as you well know anything can happen in that timeframe. Also creditor meetings are normally called very quickly from when it becomes clear that a company is in trouble. The chances are before you get to find out the company is in trouble the creditor meeting is only days away and running a business you may find it hard to get your vote in on time. Most creditors do not attend the creditor meeting choosing to vote by proxy instead. It is estimated that around 50% of creditors may not even bother voting, either in person or by proxy simply because they dont see the point.

If you are approached for credit you may wish to check the background of the company concerned. Some companies are fortunate enough to have the facilities offered by a credit rating service but some smaller companies may not be able to afford to pay for these services.

Your first port of call should be, in the case of a limited company, to fire up your favourite web browser and goto the companies house website. On the right click the link for Web Check. Enter the name of the limited company and perform a search. In the results list provided find the limited company in question and click on the company number to view the record of that company as held at companies house.

You are looking in two important areas, first at the top look at the company status which for a healthy company will be marked as 'Active'. In the case of a company in CVA it will me marked as 'Voluntary Arrangement'. Next scroll down and look for a section marked Insolvency History. For a company which has never had any troubles this section will not be there. For a company currently in trouble or having been in trouble in the past this section will offer further details.

Remember you can purchase company documents on any limited company for £1 through the companies house website.

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