What is a Company Voluntary Arrangement?
A company voluntary arrangement (CVA) is a legally binding agreement with your company’s creditors and shareholders, the arrangement allows a proportion of its debts to be paid back over a period of time.
To get approval from credits and shareholders for this memorandum to be past and crystallised, it needs 75% of the creditors, by value, to vote in favour to support the proposition.
Once the proposition has been passed at the meeting then all unsecured creditors are bound by the arrangement and its insolvency processes.
This allows the company to carry on trading as usual, and the directors remain in control. A supervisor monitors the CVA, he or she has to be a licensed insolvency practitioner. The arrangement usually lasts for 3-5 years.
The type of formal insolvency procedure is known as one of the best rescue tool for a company that has a viable future moving forward but is burdened by historic debt.
The directors can remain in control of the company as they understand the business, allowing them to trade out of their current financial problems. Company voluntary arrangements allow businesses to address the problems that caused the debts in the first place allowing a breathing space whilst being able to continue trading.
Who is Eligible for a CVA?
The CVA procedure is similar to an Individual Voluntary Arrangement, however, it is specifically designed for limited companies registered in England and Wales
The CVA procedure is primarily adopted by insolvent businesses that want to ring-fence any historic debts, allowing the limited company to trade on, as normal. A company may be eligible for a Company Voluntary Arrangement when:
- The company is insolvent;
- The company has engaged an insolvency practitioner and can prove that the business is still viable as a going concern. This means that the company must be able to show that it will have enough capital in the future to repay the debts, whilst remaining profitable and continuing to pay ongoing taxes like VAT/PAYE, etc.
How does the process work?
The timescale from initial contact with an insolvency practitioner to formal acceptance of a CVA is 6-8 weeks on average.
Once an IP has been appointed, it can take around 4 weeks to produce, file in court, and post the final CVA schedule to creditors.
Advantages of a Company Voluntary Arrangement
- Halts pressure from creditors and HMRC while the arrangement is being prepared.
- Protects your company from any legitimate actions taken by creditors while the CVA is active, as long as you adhere to the terms of the arrangement.
- Centralises all of your creditors into a single monthly payment.
- Company directors and shareholders stay in control of the business throughout the procedure and there is no need to make the public specifically aware by advertising in the London Gazette that you’re in a Company Voluntary Arrangement, as would be the case with company administration.
- Can stop a winding up petition from putting your company out of business. Keep in mind that the CVA will usually have to be proposed within 7 days of being served a winding up petition for this to be successful.
- Improves cash flow.
- Facilitates a mutually beneficial deal that works in the best interest of your creditors, as they get to have at least some (between 20%–100%) of the debt owed to them repaid in a reliable manner.
Financial Statement
Initially, we will help you to prepare a Financial Statement for the company. In preparing your statement, we will identify the company’s total debts and help prioritise those requiring immediate attention. We will also help calculate what the company can afford to pay to its creditors each month, based on projected income and expenditure.
CVA Proposal
We will then help draft your CVA proposal; this is effectively the offer you wish to make to your creditors. The CVA needs to be set out in a specified format. It will confirm your proposed monthly payment and the exact terms of the CVA. Once finalised, it will need to be signed by you, before we circulate it to your creditors.
Meeting of Creditors
The proposal will confirm the date of your meeting, this will usually be around 3-weeks after the proposal is signed. Everyone who is owned will be asked to submit a vote either ‘for’ or ‘against’ the proposed offer. At the time of the Creditors Meeting, the votes will be counted and if 75% of your creditors (in debt value) are in favour of the CVA, your agreement becomes a legal arrangement with all creditors, whether they voted in favour or not.
CVA Approval
Should the CVA be accepted by creditors, our role will change from ‘Nominee’ to ‘Supervisor’ of the arrangement. From that point forward, we are responsible for making sure you stick to the terms of the offer you have made.
If you’re not sure what a Company Voluntary Arrangement (CVA) entails or whether it’s right for your company, you’ve come to the right place. Business Insolvency Helpline have helped hundreds of directors and companies protect themselves from creditor pressure.
Any Legal Actions Against Your Company are Stayed
Once the CVA is approved any lawful actions being taken against your company are frozen and no further actions can be taken unless the CVA is defaulted on.
Regular Contributions are Made to a Trust Account
Once the CVA has been passed and in effect your company will be expected to make the projected contributions to a trust account. As long as these contributions are met then the business will continue operating without the threat of being put out of business.
If contributions are not met then the likely result will be compulsory liquidation. Should the company fail to meet the terms of the Company Voluntary Arrangement then the supervisor of the arrangement has a legal duty to petition to wind the company up by means of a compulsory liquidation.
Who is the nominee/supervisor?
While the directors remain in control of the management of the company throughout the CVA process, an insolvency practitioner, called a nominee, is responsible for assisting the directors with the preparation of the Proposal. Once the CVA has been accepted, the he or she will assume the role of supervisor and oversees the subsequent implementation of the CVA. As part of their role, the nominee/supervisor will:
- consider the Proposal in order to form an opinion as to whether a CVA is an appropriate method of dealing with the company’s affairs;
- prepare the nominee’s report stating:
- why the nominee considers the Proposal does (or does not) have a reasonable prospect of being approved and implemented; and
- why the members and creditors should (or should not) be invited to consider and vote on the Proposal.
- summon the shareholders’ meeting;
- invite the creditors to consider the Proposal by way of a decision procedure and administer it; and
- Should the Proposal be approved, assist in the implementation of the CVA and act as its supervisor for the duration of the CVA.
Will HMRC Accept a CVA?
If the main creditor is HMRC, there is a wrongful understanding the a CVA is no longer an option. HMRC will consider a CVA if they can see they’ve been well laid out and show a greater return to creditors than liquidation.
The conditions for accepting a proposal are here, HMRC’s statistics show that they approve about 70% of votes placed before them.
How much does a CVA cost?
The cost of a CVA depends very much on the total number of creditors, employees, the bank’s position, and what level of negotiation is needed.
Company voluntary arrangement’s are a formal deal to repay creditors and doing a deal involves talking to people and the stakeholders in the business. A sound understanding of financial information is needed to complete the proposal for creditors, it helps if there are no It helps if the company has no aggressive legal actions by creditors wanting to wind up the business via a compulsory liquidation. By acting early this can be generally avoided.
Need more information?
If you need more information and would free confidential advice for your business on any issues you maybe facing, feel free to contact us on the above number.
