Company Voluntary Arrangement
Company Voluntary Arrangement (“CVA”) is an arrangment or in essence a contract between a company and its creditors which allows the company to delay or compromise the payment of debts.
The CVA procedure is set out in Part I of the Insolvency Act 1986.
An CVA is flexible and can be adapted. In essence, an CVA will substitute the terms of the person’s existing contracts with his or her creditors with the terms set out in the CVA proposal. For example, the proposal might require the company to pay a fixed monthly sum into the arrangement for a period of say five years so that creditors receive a dividend.
A CVA is a proposal to creditors and the term and amount of payments can vary pending on the circumstances and can potentially be modified by creditors. We can assist you and carry out a review of your company’s affairs to ascertain whether an CVA is appropriate for you. We can then help in the drafting of the proposal.
Potential CVA benefits
Some of the key benefits of a CVA are:
- all or a percentage of a company debts can be paid back, depending on affordability, making it beneficial to the business and creditors
- a Company Voluntary Arrangement can allow the core business to trade on under the control of its directors allowing the company to continue to generate income to repay some of its debts
- a Company Voluntary Arrangement can provide the time needed for a business to reorganise and restructure itself
- a ‘statutory moratorium period’ can be used to provide a breathing space from creditor action (such as a winding up petition) while an initial CVA proposal is prepared
- a CVA can be less costly than other insolvency procedures but this does relate to how complex the situation is
- secured creditors generally remain outside of the CVA and therefore are likely to be supportive
- a CVA may enable a company to avoid the negativity of other insolvency procedures (a CVA is not normally advertised but it is registered at Companies House and employees must be informed)
- A licensed insolvency practitioner (“IP”) is approached – they will assess the company situation and decide whether a CVA is the most appropriate solution, keeping both business and creditors in mind. We can review your company situation and quickly offer advice
- If recommended by the IP, a CVA proposal is drafted following a detailed review of the company, its liabilities and assets as well as creditors and debts. The company directors may agree its terms or request amendments, but the IP must be satisfied that any final proposal has a reasonable chance of success before proceeding
- Upon agreement the final proposal is filed at court, given a legal originating number, printed, and then copies distributed to creditors
- The IP arranges separate meetings for creditors and shareholders not less than three weeks following the distribution of the CVA
- The creditors’ meeting provides an opportunity to question the terms of the CVA, although some creditors choose to send a representative rather than attending themselves. Others prefer to vote by post or fax their acceptance or rejection of the proposal
- The proposal requires 75% or more of the creditors (by debt value), vote in favour of the CVA, including postal and proxy votes
- A vote is also taken at the shareholders’ meeting, with a majority of 50% or more (by debt value) is necessary for the Company Voluntary Arrangement to be approved
- The IP chairs each meeting, and on successful approval issues a report to the court and all creditors within four days. The report details the outcome of each meeting – who was there, plus the results of each vote
- The Company Voluntary Arrangement takes effect as from the date of the creditors’ meeting – no action can then be taken against the company by its creditors unless there is a default, in which case it will probably result in the compulsory liquidation of the company.