Company Voluntary Arrangements (CVA)
An insolvency procedure for companies in financial trouble
Q) What is a Company Voluntary Arrangement (CVA) ?
Q) Who can benefit from a Company Voluntary Arrangement (CVA) ?
Q) The Company Voluntary Arrangement (CVA) Procedure.
Q) What makes a successful Company Voluntary Arrangement (CVA)?
Q) Advantages of Company Voluntary Arrangement (CVA).
Q) What is a Company Voluntary Arrangement (CVA) ?
A Company Voluntary Arrangement (CVA) is an insolvency procedure allows a financially troubled company to reach a binding agreement with its creditors about payment of all, or part of, its debts over an agreed period of time.
A Company Voluntary Arrangement (CVA) can be proposed by the directors of the company, the administrators of the company, or the liquidator of the company.
Before the Company Voluntary Arrangement (CVA) proposal is made, an application can be made to court for a moratorium which prevents creditors from taking action against the company or its property for up to 28 days, although if an administrator is in office the company will already be covered by the moratorium arising from the administration.
A Company Voluntary Arrangement (CVA) cannot be proposed by creditors or shareholders.
When the Company Voluntary Arrangement(CVA) has been proposed, a nominee (who must be an insolvency practitioner) reports to court on whether a meeting of creditors and shareholders should be held to consider the proposal.
The meeting decides whether to approve the Company Voluntary Arrangement (CVA). If 75% of the creditors agree to the proposal, it is then binding and all creditors who had notice of the meeting and were entitled to vote. All creditors who had notice of the meeting are bound by the terms of the arrangement.
If the meeting of creditors and shareholders approves a Company Voluntary Arrangement (CVA), the nominee (or other insolvency practitioner), becomes the supervisor of the Company Voluntary Arrangement (CVA).
Once the Company Voluntary Arrangement (CVA) has been carried out, the company's liability to its creditors (who had notice of the meeting of creditors) is cleared. The company can continue trading during the Company Voluntary Arrangement (CVA) and afterwards. A Company Voluntary Arrangement (CVA) can be set up when a company is in liquidation or in an administration, as well as at any other time.
Who Can Benefit From A Company Voluntary Arrangement (CVA)?
- Businesses that have experienced trading difficulties since start up and need time to prove their business model.
- Businesses that want to avoid the stigma of liquidation.
- Businesses that know they can be profitable and successful in the future but need a bit of time.
- Businesses that have close ties with their suppliers and do not want to see them lose what they are owed.
- Business that need some time to put together a new business plan for the company.
- Businesses that will be profitable in the short term but are under pressure from creditors
- Businesses that are profitable but have experienced bad debts or late payers this affecting the short term health of the company.
- Businesses that need to restructure.
- Businesses that have a good business model with a full order book redundancy but do not have the cash flow problems.
- Companies that wish to wind down trading in an orderly fashion
- Companies that wish to close down over a certain time.
The Company Voluntary Arrangement (CVA) Procedure
A Company Voluntary Arrangement (CVA) proposal is drafted by the directors with the assistance of a Licensed Insolvency Practitioner known as the Nominee.
The proposals are then sent to the following stakeholders giving them 14 days notice of the Company Voluntary Arrangement (CVA) creditors meeting:-
- The Court
- The company Creditors
- The company shareholders
At the Company Voluntary Arrangement (CVA) meeting 75% in value of those creditors entitled to and who vote either in person or by proxy at the meeting must approve the Company Voluntary Arrangement (CVA).
The approved Company Voluntary arrangement binds every person who in accordance with the rules had notice of, and was entitled to vote at, that meeting (whether or not he was present or represented at the meeting) as if he were a party to the Company Voluntary Arrangement (CVA).
What makes a successful Company Voluntary Arrangement (CVA).
- The company directors must be honesty about the company's affairs.
- The business must be viable for a Company Voluntary Arrangement (CVA) to work.
- The company directors must be hard working and determined for the company to succeed.
- The company directors must show the true financial position of the company.
- A Company Voluntary Arrangement (CVA) must offer the creditors more money than would be received if the company went into liquidation.
- The company must have sufficient working capital to trade and pay day to day expenses.
- The business must at least breakeven.
- The company should have a full order book or some business in the pipeline.
- The creditors must support the rescue process. It is therefore advantageous for the company directors to canvass support of the creditors in advance of the Company Voluntary Arrangement (CVA).
Advantages of Company Voluntary Arrangement (CVA)
- A Company Voluntary Arrangement (CVA) provides the company directors with more time so preventing the creditors from taking enforcement action via the court system..
- The government, banks and large creditors are keen on promoting the "rescue culture" and so they are generally prepared to work with trouble businesses to save them.
- Company Voluntary Arrangements allow structured payment of crown tax arrears.
- A Company Voluntary Arrangement (CVA) is a cost effective method for avoiding outright insolvency for a company with financial problems.
- A Company Voluntary Arrangement (CVA) is a flexible way of dealing with a companies debt problems because the actual CVA proposal can be co-produced bt the company directors.
- A Company Voluntary Arrangement (CVA) is legally binding.
- A Company Voluntary Arrangement (CVA) allow the core business to trade on and so the provides the company directors with continued income.
- A Company Voluntary Arrangement (CVA) provides the company with breathing space so the company can facilitate the rescue procedure.
- A Company Voluntary Arrangement (CVA) provides the company directors with more time so preventing the creditors from taking enforcement action via the court system..
- A Company Voluntary Arrangement (CVA) costs less that other more serious insolvency procedures such as receivership or administration.
Company Voluntary Arrangements allow structured payment of crown tax arrears.
- A Company Voluntary Arrangement (CVA) is a private matter so the company will not appear in the papers sp avoiding negative publicity.
- A Company Voluntary Arrangement (CVA) avoids the need for the Licensed Insolvency Practitioner to report on the conduct of the directors to the submit a report to the Directors Disqualification Unit of the Department for Business, Enterprise & Regulatory Reform (BERR).
Useful Links
CVA - Company Voluntary Arrangement
Directors - Do's & Don’ts
Receivership
Winding Up Petitions
Liquidation
Recovery Plans
Administration
Tax & Vat Arrears
Wrongful Trading
CVA – FAQs
