Company Voluntary Arrangement – A rescue option for company in debt

COMPANY DEBT ANALYSER

Company Voluntary Arrangement

Often referred to as a CVA, a Company Voluntary Arrangement is an insolvency procedure that can be used by a company with significant business debt. A CVA creates a binding agreement with creditors regarding the payment of debt, either in its entirety or over an agreed period of time. The process can help insolvent companies continue to trade, allowing directors to focus on recovery instead of the stress that comes with the business’s debt.

A CVA can be proposed by the directors, administrators or liquidators of a company. A CVA cannot be proposed by creditors or shareholders.

Before the CVA proposal is made, the business can make an application to court for a moratorium which prevents creditors from taking action against the company or its property for up to 28 days.

When the 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.

At this meeting a CVA will be approved if 75% of the creditors agree to the proposal. The insolvency practitioner then becomes the supervisor of the CVA. A CVA can be undertaken during an administration or if the business is in liquidation, as well as any other time. The company can also continue to trade during the CVA process and afterwards. Once it has been carried out, the company liabilities to creditors are cleared.

Under which circumstances does a CVA become appropriate for a business?

There are many situations where a CVA can be of help:

  • Businesses that have experienced difficulties trading and need to procure more time to prove that their business is viable.
    Companies who want to avoid the stigma that comes with liquidation.
  • Businesses who feel that they have the potential to be profitable but need more time to realise this potential.
  • Business with close relationships with their suppliers and do not wish these supplier to be financially affected in the event of liquidation.
  • Businesses that require additional time to put together a viable and practical business plan.
  • Companies that are profitable in the short term but face pressure from their creditors.
  • Profitable companies that have experienced significant business debts or late payments, affecting the short-term health of the business.
  • Any business undergoing restructuring or insolvency.
  • Businesses that wish to wind down over a certain period, or wish to do so in an orderly and dignified fashion.

What are the advantages of a CVA?

  • Company directors get more time to plan and improve their position, preventing creditors from taking action through the court systems.
  • Bank, creditors and the government are keen to be a part of the ‘business rescue’ culture, and are more likely to work with businesses that are using structured solutions to their financial trouble.
  • They are legally binding and have government backing.
  • The business can still trade and provide income to the directors.
  • A CVA is less costly than other procedures involving insolvency, including administration or receivership.
  • A CVA buys time for company directors to restructure and reorganise company financial issues and functions.
  • A CVA does not require an insolvency practitioner to investigate the affairs of a company.

For more information on CVAs and how we e can help with business debt and insolvency, please call us or visit our contact page for further details.

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