A Guide to Company Voluntary Arrangement (CVA)

COMPANY DEBT ANALYSER

A Guide to Company Voluntary Arrangement

The Procedure

This 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 moratorium, which stops creditors taking enforcement action, can be applied for by applying to the Court but it is normally required.

When the arrangement 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 Proposal

An Insolvency Practitioner will assist in the preparation of the company’s voluntary arrangement proposal and statement of affairs based upon information provided by you and by anybody who is authorised to provide such information on your behalf, which may include, for example, your accountant.

Once the proposal has been drafted it will be provided to you for approval. Should any amendments be needed we will make such changes as you direct, but with consideration to the matters required by the legislation and our licencing body. Full and accurate details of the company’s financial situation are imperative as a misstatement of the amount of the assets and liabilities can constitute a material irregularity. In addition it must be noted that a director of a company commits an offence if he makes a false representation or commits any other fraud for the purposes of obtaining the approval of the creditors to the proposed arrangement.

Once you are satisfied the proposal is finalised we will prepare all the necessary statutory documentation to allow you to formally lodge the CVA with the relevant county court. You will be asked to review this proposal and associated documentation and sign where appropriate. The proposal is a legally binding document and you should obtain independent legal advice before entering into the same should you be uncertain about any of its contents. Once the proposal has been signed, one or more of the insolvency practitioners at this firm may sign one of the statutory notices and consent to act in their capacity as nominee.

The role of the nominee

The nominee will then prepare their independent report commenting upon proposal. If at this time more information is needed, we will ask you for this as soon as possible to avoid any delay.

Once the nominee’s report has been completed it will be filed with the court stating a date on which the meeting of creditors will be held for the purposes of considering the company’s proposal. This date must be at least fourteen days from the date on which the nominee’s report is lodged in court.

Following the filing of the nominee’s report in court, notice of the meeting must be given by us to all creditors of the company of whose claim we are aware and includes both secured and unsecured creditors. Creditors will also receive a copy of the proposal, a copy of the nominee’s report, and other statutory documentation necessary to allow them to consider the proposal that they have received.

The creditors meeting

During the period up to the meeting the company’s creditors have the opportunity to consider the proposal and send in their vote on the proposal via a proxy form or attend the meeting and vote in person. The creditors may vote in one of three ways:

  1. Approve the proposal without modification;
  2. Reject the proposal;
  3. Approve the proposal but with modifications.

Should creditors put forward modifications you must decide whether or not to accept these. If you do not accept these it is likely that they will instruct the proxy holder to cast their vote as a rejection of the proposal, meaning the proposal may not be approved. If the proposal is not accepted additional time (up to fourteen days) may be given to allow you to reconsider the position or make any amendments to increase the chance of it being accepted.

If your proposal is accepted the nominee will then, subject to the approval of creditors, act as supervisor to put the proposal into practice. It is possible for an alternative insolvency practitioner to be appointed as supervisor, however this is uncommon. Should your proposal be rejected after the maximum 14 day period of adjournment the engagement will terminate, but please note that we may enter into a separate engagement in respect of an alternative insolvency procedure for the company, such as a Creditors Voluntary Liquidation or Administration.

The supervisor’s role and scope of his duties will be outlined in the proposal, however in broad terms the role of the supervisor is to ensure the agreed terms of the CVA are followed by all parties to it and that any breaches are acted upon accordingly.

As mentioned above, once the arrangement has been approved the supervisor will oversee its implementation and running. One of the terms that is required to be included will state what will happen in the event of a default in the terms of the arrangement, which will include most commonly where the company is unable to keep up the contributions. In most cases the terms of a voluntary arrangement will indicate that where a breach has occurred it will be necessary for the supervisor to issue a certificate of termination and seek to wind up the company by issuing a winding up petition in the court.

Company Voluntary Arrangement (CVA)- FAQ’s

Who can propose a Company Voluntary Arrangement (CVA)?

In most cases the company directors will initiate CVA proceedings but the liquidator or administrator can also promote a CVA on behalf of the company.

What are the costs?

An insolvency practitioner will initially review your case free of charge, every case is different and therefore we need to understand your circumstances before providing appropriate advice. It is only when you are happy with the advice the insolvency practitioner will look at your specific needs and the complexity of the case before outlining and agreeing any fees.

As a director what information do I need to provide to an insolvency practitioner?

An insolvency practitioner will need various information about the company including, trading history, financial accounts, cash flow forecasts, and the reasons behind the company’s current situation. It is important as a director you ensure all information is made available to us and is accurate, such as any previous legal proceedings or financial difficulties the company has experienced.

What needs to be considered for a CVA?

For a CVA to be considered an appropriate solution there are several aspects to consider:

  • Is the company able to regain profitability and increase turnover?
  • Can underlying problems be solved and current difficulties overcome?
  • Has the business received new capital investments and whether future capital injections are to be expected?
  • Can the employees adapt to the situation and implement essential changes to secure the business in the future?
  • Is the proposed CVA financially viable for the company considering future liabilities?

What is the majority vote at the meeting?

The meeting decides whether to approve the voluntary arrangement through a majority vote. If 75% of the unsecured creditors agree to the proposal, it is then binding on all creditors who had notice of the meeting and were entitled to vote. If the meeting of creditors and shareholders approves a voluntary arrangement, the nominee(or other insolvency practitioner), becomes the supervisor of the arrangement and is responsible to monitor the compliance during the terms of the CVA.

Will the bank be involved in the CVA?

In the event that the bank is a secured creditor they will not be bound by the terms of the CVA. However it is important you build a good relationship with any secure creditors and gain support through any financial difficulty the company is experiencing.

Can the CVA be adapted if circumstances within the company change?

A variation to the terms of the CVA must be agreed by creditors with a 75% majority vote. Any variation should be presented at a meeting of creditors where they will decide if the amendments are agreeable and the terms of the CVA should be changed going forward.

Can the company continue to trade whilst the CVA is proposal is being considered?

It is in the best interests of the company and the creditors if the company can continue to trade.

How will this affect employees?

Changes will need to be made to the business to increase and sustain profitability. Management will need to discuss these changes with employees ensuring the necessary improvements are made. Employees may be affected in various ways such as redundancy or role changes, it is important to inform them as early as possible and implement the changes quickly.

Will Personal Guarantees still stand if the CVA is proposed?

Yes all personal guarantees will be in effect until all outstanding debt has been paid and the account is cleared.

By using our services, you agree to Insolvency Helpline's Cookies Policy.