Business Solutions
What Is a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is a formal insolvency procedure available to limited companies in financial difficulty. It is a legally binding agreement between a company and its creditors.
Under a CVA, a company may propose to repay an agreed amount of its debts over a fixed period. If the arrangement is approved and successfully completed, any remaining included unsecured debt may be written off.
A CVA must be set up and supervised by a licensed Insolvency Practitioner. Creditors must vote to approve the proposal, and acceptance depends on the specific financial circumstances of the business.
If approved, the company may be able to continue trading under the agreed terms. However, a CVA may not be suitable for all businesses and carries risks, including potential impact on creditworthiness and supplier relationships.
An assessment of the company’s financial position is required before determining whether a CVA may be appropriate.
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What is a Company Voluntary Arrangement? (CVA)
A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that may allow a company to continue trading while repaying creditors over an agreed period.
A CVA must be proposed and supervised by a licensed Insolvency Practitioner, who will assess the company’s financial position, prepare the proposal, and liaise with creditors. Creditors must vote to approve the arrangement, and approval is not guaranteed.
Credit Counsellor Limited does not provide insolvency advice or prepare CVA proposals. We provide general information and may introduce you to a licensed Insolvency Practitioner or authorised firm who can review your company’s circumstances and provide regulated advice.
All insolvency options carry risks and implications for the business and its directors. You should seek advice from a properly authorised and regulated professional before making any decision.
The CVA Process
What are the advantages and disadvantages of CVA?
Advantages
- The Company is allowed to continue to trade.
- Director remain in control of the Company and business.
- There is no requirement to investigate the conduct of Directors.
- There is less publicity regarding the Company entering a CVA compared to other insolvency processes.
- Stop pressure from tax, VAT and PAYE while the CVA is being prepared.
- Enables the Company to restructure and cut costs.
- Usually a better return for creditors than other insolvency processes.
- Allows the termination of onerous contracts which will then be included in the CVA (including contracts of employment).
- Variations to the original CVA proposals can be presented to creditors should there be a requirement to vary the terms of the original proposals (any such variation requires the agreement of creditors)
Is a Company Voluntary Arrangement ('CVA') right for you? -
Once the CVA proposals have been drafted and approved by the board of directors, a Nominee, prepare your report on the proposals, file the document at Court and circulate them requesting that creditors vote for their acceptance. They will handle all creditor questions regarding the proposals and deal with all procedural matters. Once the CVA is approved they then monitor the Company's compliance with the CVA and become the CVA's Supervisor allowing the Directors to concentrate on their business.
Disadvantages
- A CVA requires 75% of those creditors who vote in the process (by value of debt ) to agree to the proposals.
- The Company’s credit rating will be affected making it difficult to obtain any credit.
- A CVA can last a long period of time (usually 3 – 5 years).
- Should the Company fail to adhere to the terms of the CVA then the CVA could fail and creditors could take legal action and it could result in the Liquidation of the Company
Company Voluntary Arrangement FAQ's
What is Company Voluntary Arrangement?
A Company Voluntary Arrangement (‘CVA’) is a legally binding agreement between the Company and its creditors. It provides a solution by which companies in distress can formulate a plan to pay monies towards their debts over a fixed period of time. The CVA requires the approval of 75% of creditors, by value, who vote, to support the CVA proposals to be accepted. Upon successful conclusion of the CVA any remaining debt is written off and the Company continues to trade as normal outside of the CVA. The CVA is a powerful tool to allow the Company to address issues within the business, cut costs and restructure its trading activities.
Any Company looking to consider a CVA will need to seek the assistance of a Licensed Insolvency Practitioner who can advise Directors on the most appropriate course of action given the particular circumstances.
Who is a CVA for?
- If the Company has a viable core business with prospects of becoming profitable (possibly following a restructure or cost reduction exercise)
- The Company has suffered the effects of a one-off incident such as a significant bad debt or can address the cause of the current financial situation
- The Company wishes to restructure its business to return to profitability but wishes to avoid Liquidation or Company Administration
Alternative solutions to a CVA
It may be that a CVA is not the right solution for your company. There are other solutions available and the right route is very much dependent upon your circumstances.
Administration – This solution quickly protects the Company from creditor pressure and allows the Company to try and formulate a rescue plan. This process can conclude by proposing a CVA to creditors or by selling the business in what is call a pre-pack Administration.
Liquidation – It may be that the Company is unable to continue and that there is not a business to save. In this scenario a liquidation may be the best option for your company.
