CVA

If a company is insolvent and struggling to pay its creditors but the directors feel that they still have a viable business that could recover and prosper then a Company Voluntary Arrangement (CVA) is an option worth exploring.

It enables all of the company’s debts to be restructured with them often agreeing to accept a lower amount than they are owed with repayments at an affordable level and repaid over an agreed period – usually over up to 5 years. It is often used as an alternative to the company going into liquidation.

What are some of the advantages of a Company Voluntary Arrangement?

1. Any debts have the interest frozen.
2. It avoids the company being wound up so the directors are still able to operate and control the company without pressure from creditors.
3. Creditors receive more money back than if the company goes into liquidation.
4. Cash flow improves.

What is the procedure?

With the assistance of an Insolvency Practitioner, a proposal must be prepared by the directors and submitted to the unsecured creditors and shareholders at meetings. It must demonstrate that a CVA is a more viable option that liquidating the company.

The following information must be included in the proposal: –

• What circumstances has led to the company submitting the proposal?
• What does the arrangement cover?
• What will the business do going forward?
• How does a CVA compare with liquidating the company from the creditors’ perspective i.e. how much will the creditors receive?
• What is the proposed financial arrangement i.e. repayment amount and term.

In order for a Company Voluntary Arrangement to be put in place it requires the approval of a minimum of 75% of the creditors responsible for any unsecured debts and a minimum of 50% of the shareholders. Assuming the proposal or a varied proposal is approved any legal action being taken by creditors ceases. As long as the agreed repayment schedule is maintained the company can continue to trade. However, if the repayments are not kept up it is probable that the company will be placed into liquidation. On average, the process takes between 6 to 8 weeks.

Clients using our service benefit from a high success rate of CVAs being approved so we look forward to you contacting us.