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Company Rescue using a Company Voluntary Arrangement CVA

COMPANY DEBT ANALYSER

A Company Voluntary Arrangement (or CVA) is a legal agreement between your company and its creditors, based on the company repaying a fixed amount that is lower than your actual outstanding debt. The repayments are calculated monthly, based on an amount that the business can reasonably afford. Remaining debts are written off at the end of the arrangement. Typically around 45% of business debts may be written off during the course of a CVA.

In today’s tough financial times, the threat of insolvency is all too real. Businesses across the country are being forced to close their doors to escape the demands of creditors, but this devastating solution is far from ideal. What if there was another way? Despite debts building up, if your business still has a viable future then a company voluntary arrangement could be just the thing.

What is a company voluntary arrangement?

A company voluntary arrangement is an agreement between your company and its creditors about how you’ll move forward. It allows you to repay a fixed amount in monthly instalments, and when the end of the term is reached any outstanding debt is automatically written off. This means you only have to pay back what your company can afford, letting your outstanding debt be markedly reduced.

A company voluntary arrangement can be the perfect solution for a lot of companies. Companies that have got themselves into crippling debt but who still have huge potential are able to continue without the threat of insolvency, and a company voluntary arrangement works out well for you as well as your creditors – you get to continue in business, while your creditors get far more than they would if you went into liquidation. It’s win-win.

Of course, this will be a huge decision to make. You’ll need to consider all the consequences of agreeing to such an arrangement and will need to decide what’s best for your business, and that’s where company voluntary arrangement advice comes in.

Introduction to company voluntary arrangement?

A Company Voluntary Arrangement (“CVA”) is an insolvency procedure intended to help viable companies that find themselves in financial difficulties. It is a rescue tool that allows a company to reach an agreement with its creditors as to how it intends to repay the money it owes. The terms of the arrangement or compromise is set out in a Proposal document.

The rules governing the implementation of the terms of the Arrangement are set out in Part I of the Insolvency Act 1986 (as amended) and the

Insolvency Rules 1986 (as amended). Once agreed by the creditors, the Arrangement is supervised by a Licensed Insolvency Practitioner who is called the Supervisor. It is worth noting that there is no statutory requirement for a company to be insolvent or unable to pay its debts in order for it to put forward a CVA Proposal.

The Proposal does not have to offer 100p in the £ to creditors, but directors when constructing the Proposal have to be mindful of what the outcome might be as regards creditors if they vote against the Proposal i.e. they may get a better return via an alternative insolvency procedure.

It is possible to apply for a moratorium so that pressing creditors cannot take any recovery action against a company whilst a CVA Proposal is being formulated.

Who Proposes a Company Voluntary Arrangement?

If a company is not in Administration or Liquidation, a CVA is proposed by its directors who will consult with an Insolvency Practitioner as to how to proceed. If in Administration or Liquidation, a CVA can be proposed by the appointed Administrator or Liquidator.

Neither creditors nor shareholders of a company can propose a CVA, they only have the power to approve, modify or reject a Proposal.

Who Approves a Company Voluntary Arrangement?

In order for a CVA Proposal to be approved, separate meetings of the company’s creditors and shareholders are held and the Proposal has to be passed by both the creditors and the shareholders. The voting requirements to get approval are:

  • in respect of creditors, 75% by value of creditors’ claims present in person or by proxy voting in favour of the Proposal at the meeting,
  • in respect of shareholders, 50% by value of the company’s shareholders present in person or by proxy voting in favour of the Proposal at the meeting.

In addition to the requirement for 75% of all creditors to vote in favour of the Proposal, there is a second test that requires connected creditors to be ignored and 50% by value of the remaining creditors’ claims must vote in favour of the Proposal.

If there is disagreement between the creditors and the shareholders, the views of the creditors prevail although if the decision taken by the creditors’ meeting differs from that taken by the shareholders’ meeting a shareholder of the company may apply to the court.

Effects of Approval of a Company Voluntary Arrangement

If the CVA Proposal is approved by the creditors and the shareholders, it binds all the creditors of the company who were entitled to vote at the meeting, or would have been so entitled had they had notice of the meeting. Therefore, this means that it binds:

  • creditors who voted in favour of the CVA,
  • creditors who voted against the CVA,
  • creditors who did not vote whether or not they attended the meeting,
  • creditors who did not receive notice of the meeting, even if they were entitled to receive such notice.

It does not bind secure creditors or preferential creditors unless they specifically agree.

Voting in a Company Voluntary Arrangement

The Nominee

Directors who wish to propose a CVA will consult with an Insolvency Practitioner and if he agrees to act will assist the directors to construct a CVA Proposal to put to the creditors and shareholders.

Although every Proposal is different, it will have common features as to the rules governing its implementation if approved. Each Proposal is tailored to the particular circumstances and this is where the experience and knowledge of the Insolvency Practitioner is essential.

If he agrees, the Insolvency Practitioner will become the Nominee of the Proposal and although he will have usually been heavily involved in the construction of the Proposal, once it is finalised, it is his role to recommend whether meetings of creditors and shareholders should be called to vote on the Proposal.

It is also the Nominee’s duty to provide his comments for the benefit of the creditors and shareholders as to how the Proposal has been constructed, what verification has been carried out regarding the content of the Proposal and any other points he considers would benefit creditors and shareholders in deciding whether or not to approve or otherwise the Proposal.

The Supervisor

Once the CVA Proposal has been approved by creditors and shareholders, an Insolvency Practitioner (usually the same person who was the Nominee) becomes the Supervisor. It is his role to ensure that the terms of the Proposal are implemented and that dividends are paid to creditors as agreed.

It is not the Supervisors role to be involved in the management of the company. The control of the company remains with the directors. The Supervisor will, however, want to review periodic financial information to ensure that the company is trading profitably and is not building up more debt that it is unable to pay.

If the Supervisor identifies that the terms of the Arrangement have been breached or the company is building up new debt, he will have the powers within the Arrangement to bring it to an end and this will usually result in the company entering another insolvency procedure, usually liquidation.

When should a CVA be Proposed?

Directors of a company should consider using the CVA procedure if their company is having financial difficulties but fundamentally there is a good business that is worth preserving. It can introduce a breathing space to enable the restructuring of the business and enable a company to move forward profitably. What it cannot do is make an inherently bad business good. Some of the benefits of a CVA are;

  • It can relieve creditor pressure,
  • It can be used as a mechanism to reduce costs,
  • It is a very flexible procedure that can be tailored to a company’s particular needs and circumstances,
  • It binds dissenting creditors,
  • Secured creditors retain the benefit of their security,
  • It is not necessary to repay 100p in the £ to unsecured creditors,
  • It can be a cheaper procedure than alternative insolvency procedures,
  • Directors remain in control of the company,
  • Company documentation does not have to mention that the company is in a CVA procedure,
  • CVAs are recognised across European Union Member States.

Take Advice

If you think that your company might benefit from a CVA, the best advice that can be given is to take professional advice to assess your options.

When would you consider a Company Voluntary Arrangement?

If you believe that your company has a viable future, but current cash flow problems have resulted in mounting pressure from creditors, a Company Voluntary Arrangement may be a good solution. If you think about it, it is far better for your creditors to agree to allow your business to repay what it can afford rather than receiving far less if the business went into liquidation.

What happens once a Company Voluntary Arrangement is in place?

Once a CVA is put into practice, the company directors will normally be able to run the business in the same way as before. The Insolvency Practitioner will normally take the role of the Supervisor of the arrangement. The directors will be responsible for maintaining the payments agreed within the CVA (Paid to the Supervisor) and providing regular reporting as required by the Supervisor.

What happens to employees in a Company Voluntary Arrangement?

When a company enters into a CVA it does all employment contracts remain with their standard terms. The purpose of a Company Voluntary Arrangement is to allow the company to continue trading normally. As such, when the CVA is in place, all employment contracts remain the same and no employees are automatically made redundant. However, the very fact that a company has entered into a CVA may mean that there are financial pressures within the business and processes that need to be changed. If this is the case and the company no longer requires any of its employees, standard redundancy procedures would have to be followed.

The Key Benefits of a Company Voluntary Arrangement

  • The CVA enables the company to continue in business with a view to improving the position of the creditors
  • The CVA stops court action and winding up procedures
  • A CVA will take away the burden of legacy business debts thus easing cash flow pressures and enabling the business to continue to trade
  • Directors are allowed to remain in control of the business

Avoid having to defer tax debts by using a CVA

A Company Voluntary Arrangement will immediately reduce the monthly payments rather than simply delaying the payment of outstanding debt.

Can a company recover from a CVA?

You will read a lot about Company Voluntary Arrangements and the benefits that can be gained from this insolvency procedure, however, the real question is Can a Company Recover from a CVA?

What are the downsides to doing a Company Voluntary Arrangement?

Company voluntary arrangements are used widely to save businesses in financial difficulty. However before going ahead with this type of solution, directors should be fully aware of the potential pitfalls

What happens if I cannot pay my Company Voluntary Arrangement?

A company voluntary arrangement (CVA) can solve a company debt problem and transform a business back to profitability. However failure to maintain the agreed payments could force the company to be wound up

How can I reduce my company debt with a Company Voluntary Arrangement?

If your business is unable to pay its debts, a company voluntary arrangement (CVA) could reduce your monthly payments and write off debt thus saving the business from failure. Find out more about how this solution could work for you.

When should I use a Company Voluntary Arrangement

A company voluntary arrangement could be the ideal business rescue solution. If your business is failing due to debt which you are unable to pay and you are spending your time juggling creditors rather than running your company.

Company Voluntary Arrangement may save your Business

If it looks like you are facing insolvency, particularly where there is a large debt burden, a company voluntary arrangement (CVA) may be a good solution to rescue your business.

CVAs (Company Voluntary Arrangements) become increasingly acceptable to creditors

The outdoor and leisure clothing retailer Blacks is planning to resolve its financial difficulties by agreeing a Company Voluntary Arrangement (CVA) with its creditors. Yet more evidence that creditors are starting to understand the value of CVAs for restructuring struggling companies

How to do a Company Voluntary Arrangement

If your company is under serious pressure, but if the historic debt was removed, the business remains viable, then a Company Voluntary Arrangement (CVA) could be the answer. There are a number of steps you need to follow.

Avoid Company Bankruptcy (Liquidation) using Company Voluntary Arrangement (CVA)

Before deciding to liquidate your company, it is worth considering whether there may be a possibility of saving the business. One option you can consider is a Company Voluntary Arrangement (CVA).

Where to find company voluntary arrangement advice

Although opting for a CVA could well look like the ideal solution, it isn’t something that should be entered into lightly. It’s essential that you get the necessary company voluntary arrangement advice before you take the plunge, and it’s just as essential that you choose the provider of that advice carefully.

A lot of people initially think of heading to generic advice centres such as the CAB, but when you’re in the business world you’ll probably need someone with a bit more insider knowledge that can realistically offer sound company voluntary arrangement advice. You’ll want to find company voluntary arrangement advice from people you can trust and who have got years of experience behind them, and they should be trained in offering business debt advice and solutions. If you’re looking for someone that can accommodate your company voluntary arrangement advice needs, look no further.

We pride ourselves on offering business voluntary arrangement advice that you can count on, having been in the business of providing debt solutions to small and medium businesses for years. Our business voluntary arrangement advice takes into account your business size, its level of debt, its financial viability and any other necessary factors, all resulting in letting you know whether a company voluntary arrangement is the right course of action.

We operate on a national level to offer business voluntary arrangement advice no matter where you are in the country, and with plenty of insolvency practitioners on-hand that are trained in business voluntary arrangement advice you never have to go it alone. So, if you need business voluntary arrangement advice you can trust, make sure to come to us today.

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