How to Write Off Debt
If your company is under serious pressure from its creditors, you might have wished it were possible to write off its debts and start anew. While writing off all of the debt you owe to creditors isn’t possible, writing some debt off could be possible.
Your company can reduce the amount it’s required to repay to its creditors through a company voluntary arrangement (CVA). A CVA is an arrangement made between your company and its creditors to repay a portion of your debt over time. Using a CVA, your business can arrange to repay between 20% and 100% of what it owes to creditors over an extended time period, typically between six months and 5 years. This gives your business the flexibility it needs to continue trading.
Writing off debt and extending your company’s payment schedule through a CVA is an excellent way to reduce the effects of creditor pressure. A CVA lets your business rid itself of the burden of excessive debt and get back on track towards profitability. CVAs are an excellent solution for some businesses, but they’re not suitable for all companies. In this guide, we’ll explain how to write off debt using a CVA and offer insight to help you determine whether or not your business is eligible.
How can your company write off debt using a CVA?
Although not all of your company’s debts can be written off, certain business debts can be written off in the event that your company becomes insolvent and proposes an arrangement, known as a CVA, to its creditors.
A CVA is an arrangement between an insolvent company and its creditors. It allows the struggling company to repay its creditors on an extended schedule, typically six to 60 months, and often writes off a large amount of the company’s debt. Typically, a CVA will involve your business paying between 20% and 100% of the debt that it owes to its creditors. The total amount of debt to be repaid, as well as the amount that can be written off, depends on a range of financial factors. These include your company’s current assets, its commercial viability, its ongoing cash flow projects and more. When used effectively, a CVA maximises value for the creditors and for your company by allowing you to continue trading.
Ensuring your company can repay its remaining debt
Although a CVA could allow your business to write off a large amount of its debt, you will still be required to work with your creditors to repay a significant amount of the original debt owed by your company. In addition to this, your company will need to prove to its creditors through its CVA proposal that it’s capable of complying with a repayment plan. Repayment plans are typically for six to 60 months, allowing your business time to repay its creditors.
Failing to comply with the terms of a company voluntary arrangement can result in creditor pressure being placed on your business. Your creditors, through the appointed insolvency practitioner, will be able to issue a winding up petition. This makes it important that your business plans is considered carefully before proposing a company voluntary arrangement to write off debt. A CVA allows simple short-term debt relief, but it also requires a long-term commitment to repayment.