A CVA is a Company Voluntary Arrangement with its creditors, which allows the business to pay its debts off over time whilst turning its business around.
In most cases a businesses creditors do support businesses choosing to enter a CVA as the other option is simply to liquidate the business in which case the creditors may receive little or no repayment of what they are owed. The CVA however must be reasonable and achievable.
CVA’s can only be used if a company is insolvent but is still viable, the CVA proposal must also be approved by 75% of the businesses creditors. Once approved the CVA forms a legally binding agreement that binds all creditors to the agreement whether they voted in support or against the CVA.
The purpose of a CVA is to rescue the business whilst also being in the best interests of their creditors.
The advantages of a CVA are:
The business is protected from further action being taken by creditors
Directors get more time and breathing space to turn the business around without fear of legal action
Many creditors support the use of CVA’s and will work with businesses who try to rescue their businesses.
The process allows structured payments to be made
It’s a cost effective insolvency solution which can be used to resolve financial difficulties
Directors can initiate the CVA
Constructive and positive way of dealing with insolvency and debt
The arrangement is legally binding
The business can continue trading, and can work its way out of debt
The business is given time to restructure the organisation so that it can return to profitability.
The process costs less than other insolvency procedures
The directors conduct is not investigated as part of the procedure
How to start a CVA proposal
The CVA can either be started by the company directors or a Liquidator or Administrator, once the decision has been made to enter into a CVA the procedure needs to be run by a Licensed Insolvency Practitioner. During the process the company and its positioning in the marketplace will be assesed and a proposal will be drawn up. The Directors of the business and the creditors will have the opportunity to discuss this proposal, once the proposal has been agreed the proposal needs to be signed off to ensure that it is accurate, reasonable and achievable.