What is a CVA , or Company Voluntary Arrangement?

A CVA is similar to an IVA (Individual Voluntary Arrangements), but is instead for use by companies rather than individuals. It is a legal procedure that enables a company in financial difficulty to make a legally binding agreement with its creditors in order to clearly outline how the company’s debtors and creditors will be handled.

A Company Voluntary Arrangement (CVA) crucially is a procedure which enables a company to reach an agreement with its creditors about how debt is to be repaid. The CVA may provide a provision for partial or full repayment depending on what the company can reasonably afford to pay. Many creditors will generally support CVA’s if the alternative is liquidation with little or no return to creditors.

The Proposal must, however, be reasonable and achievable.

A company voluntary arrangement can only be proposed by a company if it is insolvent or contingently insolvent. The company voluntary arrangement requires the approval of 75% of the voting creditors and if approved, the CVA then binds all creditors irrespective of how they voted and allows the directors to retain control of their company.

A CVA aims are to serve the best interests of the creditors whilst allowing the company to continue trading and to keep the work force in employment and there are several components that are vital to a successful company voluntary arrangement proposal.

First Steps of a CVA

There must be a business plan in place to return the company to profitability. Put simply, the business plan must show that the directors have accepted that there is a pressing need for change and that the previous plan was not successful.

The proposal for the company voluntary arrangement must also be viable and be likely to be considered favourably by the creditors. As three quarters (75%) of the creditors need to be onboard and vote yes for the proposal to be granted, the plan needs careful and detailed consideration to the interests of the creditors and any working capital plus a review of credit repayments will obviously need to be arranged.

Basic Steps of the CVA Procedure:-

1) The CVA can be proposed either by the directors of the company or a Liquidator/Administrator.

2) The procedure is administered by a Licensed Insolvency Practitioner.

3) A thorough analysis of the company and its position in the marketplace is made.

4) Directors & secured creditors then debate the proposal and its key features.

5) After the proposals are complete, the Nominee / Licensed Insolvency Practitioner needs to prepare a report on the proposals which includes comment on the due diligence they have undertaken to ensure that the CVA proposals are accurate, reasonable and achievable

After the Filing a CVA Proposal:-

1) Once filed at court, the proposal is sent to the creditors.

2) A meeting is chaired by the advisor or an IP with all creditors (or agents of creditors) at which the creditors vote on the proposal

3) Creditors may request modification of the proposal, which will need to be approved by vote.

4) A shareholders meeting is held requiring 50% vote in favour of the CVA Proposal.

5) At approval the meetings close and a report is issued by the chairmain within 4 days.

6) Once approved, all creditors are legally bound by the proposal.

7) After approval the company makes agreed contributions to the trust account.

8.) The nominee / Licensed Insolvency Practitioner also has to investigate the forecast cash flow and monitor actual achievement of the company during the CVA period.

CVA – Frequently Asked Questions.

How much does the company repay its creditors?
There is no set amount or set percentage of the amounts owing to creditors that becomes part of the repayment plan under the CVA and the Licensed Insolvency Practitioner would sit down with the directors of the company and calculate what the company can afford to pay and which will form part of the ‘viable proposal’ to be debated by the directors and creditors.

Will my bank and HMRC support the CVA?
A CVA allows a company with historical and ongoing cash flow problems to repay its liabilities, either in part or in full over a period of time, and this will also include HMRC.

Generally, a company’s bankers and HMRC will not create problems with a CVA proposal if it adheres to common sense. In many circumstances bank debt is normally secured and so it remains outside of the CVA and subject to its own terms and recovery processes if so required.

Will suppliers still supply to a company with a CVA?
There is no definitive answer to this as in some circumstances many CVA’s will be seen by creditors as a sign of impending administration and as such, may decide to cut their losses and agree to the CVA, but not increase the risk by continuing to supply.

However, a very significant but temporary set of cicumstances may result in an CVA for a business with good future prospects and so creditors/suppliers may continue to do business during the CVA period / term.

CCDR are not Licensed Insolvency Practitioners and in this blog post only provide a brief outline to the question “What is a CVA , or Company Voluntary Arrangement?” so as to provide a general level of information as the term features in some of our news items and blog posts. This information is provided on the understanding that no advice is offered and that if you require the services of a Licensed Insolvency Practitioner or are considering entering into a Company Voluntary Arrangement that you seek specialist advice.

For the avoidance of doubt CCDR are a professional debt recovery agency and If you are worried about your customers going out of business and incurring bad debt/s as a result, get in touch and we can develop a suitable plan for you to manage everything from outsourced credit control through to debt collection and debt recovery or assisting you with debt mediation or dispute resolution.

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