What is a Company Voluntary Arrangement and when can one be used?
A Company Voluntary Arrangement (CVA) is a statutory agreement between a company and its creditors. It is a rescue tool that allows an insolvent company to repay its debts over a period of 1 to 5 years and requires at least 75% of the creditors to agree the proposal.
When is a CVA applicable?
A Company Voluntary Arrangement is an insolvency solution adopted by directors who want to make their company solvent again. A CVA is used when:
- A company is insolvent;
- A company, which has a great deal of debt, proves that it is still viable for trading (the company has to show that it will have enough capital in the future to cover the debts).
The Company Voluntary Arrangement Process
The CVA takes approximately one month to be implemented by the Insolvency Practitioner (IP):
- The IP will work out the arrangement and prepare a written proposal pinpointing all the details of what the agreement will involve, and what the company’s obligations will be;
- The IP will write to creditors and invite them to vote;
- If all creditors who are owed at least 75% of the debt vote in favour, the CVA is approved.
Step by Step
Here are the basic steps followed in a Company Voluntary Arrangement:
- An Insolvency Practitioner is appointed to evaluate the situation, discuss with the directors and determine whether the company can be saved from liquidation via a CVA.
- If the IP and the directors decide that a CVA is in fact a feasible route, then a written proposal will be put together. The IP becomes the Nominee, as he is in charge of bringing the document forward to the creditors.
- Once the document is completed, it has to be filed at the Court and signed copies of it will be sent to all creditors;
- Then, a creditors’ and shareholders’ meetings will be arranged. At least 75% (by debt value) of creditors must agree for the proposal to pass.
- After the meeting, the Nominee will write a report to the court and creditors outlining the decision, votes and results.
- The Nominee will implement the CVA, becoming the Supervisor for the time set in the proposal. From that moment onwards, repayments have to be carried out exactly as stated in the arrangement. The company becomes solvent and it is up for trading again.
When the CVA is completed, the Supervisor will get a completion certificate to confirm the end of the arrangement, which means that the company is released of any obligations and debts.
Company Voluntary Arrangement Contents
The most important things to be written within a CVA are:
- The reason why creditors should agree with a CVA;
- Assets’ values, third party properties, liabilities;
- Duration of the CVA, the Nominee’s expenses/remuneration and the Supervisor’s duties;
- Any guarantees that the directors (or anyone else) will offer;
- How will funds be banked/invested/dealt with.
The main facts to remember about a Company Voluntary Arrangement are:
- A CVA is a mutual agreement between a company and its creditors;
- It is used when the company is insolvent, but still able to pay its debts;
- It is a written proposal covering all the details of the trading history, the amount of debt the company commits to pay off, the payment schedule, a statement of affairs, and the estimated outcome;
- The company promises to repay its debts within a period of 1 to 5 years’ time;
- In order for a CVA to be approved, more than 75% of the creditors have to agree.
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