Company Voluntary Arrangement (CVA)
What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement (CVA) is a form of company insolvency. It is a process which formalises a deal negotiated with a company’s creditors into a legally enforceable agreement. It must be approved by a majority of creditors (75% or more of those voting on the deal).
Once a CVA has been approved, it becomes legally binding on all creditors, including the minority who may have voted against it as well as those who did not vote one way or the other. The deal with the creditors will typically involve repayment of an agreed percentage of their debts over a fixed period of time, often through monthly or quarterly contributions to the Supervisor appointed by the creditors to oversee the CVA. Alternatively the company may look to sell some or all of its assets and use the proceeds to repay the creditors. Whatever type of agreement is put in place through the CVA, all parties including the company are legally bound by its terms.
When is a CVA used?
A CVA is a solution used where the directors want to retain control of the company while they try to trade out of its difficulties. Generally it is most appropriate for companies, which are struggling to keep their creditors at bay but which have a viable business.
Creditors must be convinced that the repayment proposals and financial projections on which they are based are realistic. Where the company is offering to make regular monthly payments, it obviously must be able to afford them. The creditors will also want to know that the CVA’s implementation will be overseen by a licensed insolvency practitioner who is acceptable to them and independent of the company and its management. The official title for this role is ‘Supervisor’.
Although a company has to be either actually or contingently insolvent, the insolvency practitioner who is proposed as the Supervisor has to satisfy themselves that the business is a ‘going concern’ capable of fulfilling the terms of the proposed deal. Trading forecasts and cash flow projections will be needed to demonstrate that the company will be able to meet the terms of the deal being proposed; it will also have to demonstrate that it has good accounting and financial reporting systems.
Advice on Company Voluntary Arrangements
For more information on Company Voluntary Arrangements, we offer an initial free consultation to review the situation and make recommendations on the best way forward. If we think that Company Voluntary Arrangements is the best route forward, our specialists can support the business at every step of the way through the process.
Contact our Head Office on +44 (0) 20 3326 6454 to arrange a no obligation and confidential call with one of our Partners.
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