A Company Voluntary Arrangement, or CVA, is a formal process that enables a compromise to be entered into between a company in debt and its creditors. The purpose of a CVA is to allow the company to resolve its debts with a structured plan of repayments. Therefore, by choosing a CVA, your company is agreeing to a plan of reorganisation that involves the delayed or reduced payment of debts.
A CVA can only be implemented by an insolvency practitioner. However, proposals can be made by the directors, administrator or liquidator and include the appointment of a licensed insolvency practitioner as the nominee.
Entering a CVA is a fairly common insolvency solution as an act of recovery. It’s suitable for businesses that are struggling under the burden of debts but feel they will be able to pull through with time. It’s a great way for directors to retain control of their company and try their best to work their way out of any difficulties.
All circumstances are different and there are often many things to consider when opting for a CVA. By discussing your situation with a licensed insolvency practitioner such as Irwin Insolvency, you will have a clearer picture of your options when facing financial trouble.
If you would like to know more about the CVA process in details, please check out our Complete Guide to Company Voluntary Arrangement.
Implementation of Company Voluntary Arrangement
A company voluntary arrangement can only be implemented by an insolvency practitioner. They draft a proposal for the creditors and then discuss these proposals at a meeting to see if the CVA will be accepted. Proposals can be made by the directors, administrator or liquidator, and include the appointment of a licensed insolvency practitioner as the nominee. A vote will be held and passed so long as 75% (by debt value) of the creditors agree.
Creditors need to be reassured that the repayment proposals are realistic and that the licensed insolvency practitioner will watch the agreement closely. It’s important that the company is able to show that they will be able to afford the monthly contributions from their income.
Creditors are usually willing to support a CVA, even if they’re unlikely to recoup all they are owed, as the alternatives, such as company liquidation, are much worse as they would receive significantly less.
Once a CVA has been accepted, all company creditors are bound to the terms of the proposal, whether they voted for it or not. As long as the terms are adhered to, creditors are no longer able to take any further legal action and any existing legal actions (such as a winding-up order) will cease.
During the CVA, single payments are made monthly to the insolvency practitioner, with the fees charged by the insolvency practitioner automatically deducted. The company will no longer be required to fund any further costs.
Note that Companies House will register the fact a company has entered into a CVA and it will be recorded on its credit file.
Eligibility for Company Voluntary Arrangement
A company must be regarded as insolvent/contingently insolvent, but the insolvency practitioner should also be satisfied the business is operating under fundamentally sound practices.
Projected cash-flow forecasts are required as evidence to show the company’s ability to meet the CVA terms. They should have clear and accurate financial reporting systems to make the process run smoothly.
Benefits of Company Voluntary Arrangement
- It’s a flexible, legally-binding tool offering protection from creditors
- The company can continue its operations allowing them to improve overall profitability
- Debt repayments are consolidated into one single monthly payment
- Increased working capital as cash flow can improve quickly
- Can be cheaper than other insolvency options since they do not involve going to court unless challenged
- Gives time to reduce outgoings, such as ending leases and employment contracts
- The company’s situation will not be advertised publicly
- Creditors will have the reassurance that some of the debt will be repaid
- A CVA can prevent a winding-up petition from taking effect if action is taken quickly enough.
- The company may still be able to trade with creditors, albeit under different payment terms.
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