What is a CVA ? (Company Voluntary Arrangement)
A CVA is similar to an IVA, but for companies rather than individuals. It is a legal procedure that enables a company to make a binding agreement with its creditors describing how the company's debts and credit liabilities will be handled.
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A Company Voluntary Arrangement CVA is a procedure which enables a company to reach an agreement with its creditors about how debt is to be repaid. The CVA may provide for partial or full repayment depending on what the company can reasonably afford to pay.
Creditors do support CVAs if the alternative is liquidation with little or no return to creditors. The Proposal must, however, be reasonable and achievable.
A CVA can only be proposed by a company if it is insolvent or contingently insolvent. The CVA requires the approval of 75% of the voting creditors. If approved, the CVA binds all creditors irrespective of how they voted and allows the directors to retain control of their company.
A CVA aims to serve the best interests of the creditors while allowing the company to continue trading and to keep the work force in employment.
The are several components that are vital to a successful CVA proposal. There must be a business plan to return the company to profitability, in other words directors must accept there is a need for change. The proposal must be viable and be likely to be considered favourably by the creditors. Working capital in addition to a review of credit repayments need to be arranged.
Basic Steps of the Procedure:-
- The CVA can be proposed by directors of the company or a Liquidator/Administrator.
- The procedure is administered by a Licensed Insolvency Practitioner.
- A study of the company and its position in the marketplace in made.
- Directors & secured creditors debate the propsal.
- After the proposals are complete, the Nominee needs to prepare a report on the proposals which includes comment on the due diligence they have undertaken to ensure that the CVA proposals are accurate, reasonable and achievable
After the Filing a CVA Proposal:-
- Once filed at court, the proposal is sent to the creditors.
- A meeting is chaired by the advisor or an IP with all creditors (or agents of creditors) at which the creditors vote on the proposal
- Creditors may request modification of the proposal, which will need to be approved by vote.
- A shareholders meeting is held requiring 50% vote in favour of the CVA Proposal.
- At approval the meetings close and a report is issued by the chairmain within 4 days.
- Once approved, all creditors are legally bound by the proposal.
- After approval the company makes agreed contributions to the trust account.
CVA - Frequently Asked Questions.
How much does the company repay its creditors?
Having reviewed the financial position and the company's prospects we would sit down with the directors and calculate what the company can afford to pay into a segregated fund, typically but not always, on a monthly basis.
Will the bank, VAT and the Inland Revenue support the CVA?
In essence a CVA allows a company with historical cash flow problems to repay its liabilities, either in part or in full (including the Inland Revenue and VAT) over a period of time. Once the company's liabilities has been restructured any monies generated by the company e.g. book debts can be used as working capital rather than paying its old debts.
Generally, they will not be problems with a CVA proposal that adheres to common sense. As the bank is normally secured (as are any finance companies), it remains outside the CVA and with all pre CVA creditors showing in the segregated fund, the pressure is taken off, because you have fresh and unallocated working capital coming in to the company.
Will suppliers still supply and support the company?
It is our experience that nearly most suppliers will continue to support a company in a CVA.
Does anyone interfere with the running of the company during a CVA?
As long as the company adheres to the terms of the CVA, the company is run under the control of the directors without any outside interference. There are certain reporting requirements to a CVA Supervisor, but there are normally simple and brief.
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This material is for general information and only constitutes advice in the broadest of terms. You should not rely on this information to make any decisions. Call our advisors on 0800 043 2444 for professional advice for your own particular situation.