Company Voluntary Arrangement CVA
A CVA is the formal process that allows a compromise to be made between a company and its creditors. It is based on a vote passed by a majority of creditors (those who are owed money) when 75% or more of them are in favour of the terms proposed.The agreement must be overseen by a licensed insolvency practitioner or ‘supervisor’.
The procedure allows a company:
- To settle debts by paying only a portion of what it owes to creditors.
- To come to some other arrangement with its creditors over the payment of company debts.
Once passed, the creditors are legally bound to accept the terms of the debt plan , even those who were not in favour or did not receive notice of the meeting. Whatever agreement is put in place, all parties are contractually bound to adhere to the terms and conditions.
CVAs are a fairly common insolvency recovery solution, especially for businesses’ struggling under the burden of company debts but are still conducting business. For directors seeking to regain control of the company and attempt to make a debt plan, a CVA is a suitable solution.
Does My Business Qualify For A CVA?
While a CVA may look an appealing prospect, not all companies will qualify since at least 75% of voting creditors must agree to the CVA being implemented. A creditor is only likely to give their consent to the process if they are confident that the company will be able to maintain payments for the duration of the debt plan.
For a CVA to be approved, creditors will need reassurance that the repayment proposals are realistic. Where a company proposes to make monthly contributions from its income, it must show that it is able to afford them.
Creditors are usually willing to support a CVA even though they’re unlikely to recover everything they are owed. Most alternative solutions would see them receive significantly less.
Business rescue is not only carried out on distressed companies. Businesses often decide to restructure when in need of change. Of course, this might very well involve financial incentives, however, it could also be down to other factors which could have the potential to improve the way a company runs, such as politics (ie: Brexit) or global pandemics (ie: Covid-19).
To qualify for a CVA,
Your company must fulfil the following criteria:
What is The Timescale Of Getting A CVA?
From initial contact with an insolvency practitioner to the agreement of a CVA usually takes around 6-8 weeks. Once an Insolvency Practitioner has been appointed, it can take around 4 weeks to produce, file in court, and post the final CVA proposal to creditors.
How Does The Process Work?
Here is an overview of acquiring a CVA:
- You approach a licensed insolvency practitioner who will assess your company’s situation and decide whether a CVA is the most appropriate solution. Debt Helpline has many years’ experience of dealing with company insolvencies and can review your situation and quickly offer professional debt advice.
- If a CVA is agreed upon, a proposal is drafted following a detailed review of the company, its liabilities and assets as well as creditors and debts. Company directors may agree its terms or request amendments.
- When agreed, the final proposal is filed with the court, given a legal originating number, printed, and copies distributed to creditors.
- The IP arranges separate decisions by creditors and a meeting of shareholders more than 14 days after the distribution of the CVA proposal.
- A creditors’ meeting provides the opportunity to question the terms of the CVA. Votes can be done by post or by a representative.
- The proposal must be approved by 75% or more of the creditors (by debt value) and 50% or more of unconnected unsecured creditors (participating in a separate vote) to go ahead.
- A vote is also taken at a shareholders’ meeting. A majority of 50% or more is required for the CVA to be approved
- The IP, acting as Nominee, convenes each decision or meeting. On approval they issue a report to the court and all creditors within four days. The report details the outcome of each meeting.
- The CVA takes effect as from the date of the Creditors’ Decision. No action can then be taken against the Company by its creditors in respect of CVA debts or unless there is a default for debts moving forward.
- Once the CVA is in effect, your company will be expected to make the projected contributions to a trust account. As long as these contributions are met then the business will continue operating without the threat of company liquidation. If, however, contributions are not met then the likely result will be compulsory liquidation.
What If A CVA FAils?
A CVA is a Company Voluntary Arrangement so there is no automatic transfer of debts to the individual. It is possible that a director may have personally guaranteed the debts of the company so, in that instance, they would be liable. That would have been the case whether the business went into a CVA or not and subsequently failed.
If the company is unable to keep up with the payments, it does not mean the CVA will be ended and the company goes into liquidation. We would look to see if we can modify the arrangement. This would mean calling another creditors meeting and issuing an amended proposal. A quite common change is to extend the period that the CVA runs for.
Debt Helpline has many years’ experience of dealing with insolvency. We can review your situation and quickly offer professional debt advice
How Much Does a CVA Cost To Propose?
The main expense involved in setting up the arrangement is the cost of instructing an insolvency practitioner. This is known as the nominees fee and will vary depending on the amount of work involved, the particular, and the insolvency firm you deal with. However, on average, nominee fees will be between £5000 and £10000 and the cost of supervising the arrangement will be decided by the creditors. These fees come out of the money paid to the creditors; it is they who agree the fees of the insolvency practitioners.
Here at Debt Helpline, we offer extremely competitive rates. We have helped many businesses avoid company liquidation and dissolution through CVAs. For a free confidential discussion with one of our expert advisers call us on 0333 300 3490 or fill out our contact form.