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What is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement is a statutory agreement between an insolvent limited company and its creditors. The arrangement is legally binding and allows the insolvent company to repay a proportion of its debts over a period of 1 to 5 years. For the proposal to be approved, at least 75% of the creditors (by value of debt) need to agree to the proposal’s terms. Company Voluntary Arrangements have been a part of UK law since 1986 and is one of the Governments’ preferred rescue options for companies.

This procedure is similar to an Individual Voluntary Arrangement, however, it is specifically designed for limited companies. The procedure is primarily adopted by insolvent businesses that want to ring-fence any historic debts, allowing the limited company to trade on, as normal. A company may be eligible for a Company Voluntary Arrangement when:

  1. The company is insolvent;
  2. The company has engaged an insolvency practitioner and can prove that the business is still viable as a going concern. This means that the company must be able to show that it will have enough capital in the future to repay the debts, whilst remaining profitable and continuing to pay ongoing taxes like VAT/PAYE, etc.

What is the Company Voluntary Arrangement (CVA) Process?

  1. Once the licensed Insolvency Practitioner has been contacted they will begin to create the arrangement and draft a written proposal after gathering the necessary information about the company’s affairs;
  2. Once the proposal has been reviewed by the directors the IP will then write to creditors and invite them to vote at a creditors’ meeting;
  3. A Moratorium can be applied for ‘breathing space’ by preventing suppliers and other creditors from taking any further action against the company whilst the proposal is negotiated;
  4. The Creditors’ meeting is an opportunity for creditors to voice any concerns about the proposal and its viability. The creditors can either be at the meeting in person, or they can vote by proxy (email or post). Directors are not obligated to attend the meeting of creditors;
  5. If at least 75% of the creditors agree (by value of debt) to the proposal then the CVA is approved;
  6. There will also be a separate meeting held for the connected creditors such as employees or directors. At least 50% of the connected creditors (by value of debt) need to agree to the proposal for it to be successful;
  7. Once the CVA has been approved and the Insolvency Practitioner has been appointed as the Supervisor, they will distribute a report to the court and the creditors detailing the information of the meetings that were held and the votes that were cast;
  8. The CVA then begins once the successful voting has taken place from the meeting of creditors. Your company will then make scheduled payments to the creditors via the Insolvency Practitioner as part of the arrangement, to repay the debt. The company is protected by the arrangement providing all scheduled payments are made. If the company defaults on a payment it is likely that the it will be wound up via compulsory liquidation.

Advantages of a Company Voluntary Arrangement (CVA)

Disadvantages of a Company Voluntary Arrangement (CVA)

What is Included Within a CVA Proposal?

Some of the key elements that are included within a Company Voluntary Arrangement proposal are listed below:

CVA Advice

As always, the directors are obliged to act in the best interests of the creditors for this procedure. If any personal guarantee has been signed, the director would only be made personally liable for that amount if the CVA fails. For this reason, a successful Company Voluntary Arrangement is in both the creditors’ and the directors’ best interests. During a CVA the directors remain in control and there is no investigation into their conduct, as part of the process. If HMRC is involved, it will mean that all accounts and tax submissions will need to be up to date to ensure they have a clear picture of any taxes that are owed.

Call 08000 746 757 to find out how Company Voluntary Arrangements could help your cash flow problems. You call also call one of our top insolvency professionals Sue Collins directly on 07949 969 006 in the strictest confidence.

Author: Mike Smith