Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) is an insolvency procedure that allows a financially troubled company to reach a binding agreement with its creditors in order to make payment of all, or part of, its debts over an agreed period of time, usually 5 years.

A Company Voluntary Arrangement (CVA) can be proposed by the directors of the company, the administrators of the company, or the liquidator of the company.

Before the Company Voluntary Arrangement (CVA) proposal is made, an application can be made to court for a moratorium which prevents creditors from taking action against the company or its property for up to 28 days, although if an administrator is in office the company will already be covered by the moratorium arising from the administration.

When the Company Voluntary Arrangement (CVA) has been proposed, a nominee (who must be an insolvency practitioner) reports to court on whether a meeting of creditors and shareholders should be held to consider the proposal.

The meeting decides whether to approve the Company Voluntary Arrangement (CVA). If 75% of the creditors agree to the proposal, it is then binding and all creditors who had notice of the meeting and were entitled to vote. All creditors who had notice of the meeting are bound by the terms of the arrangement.

If the meeting of creditors and shareholders approves a Company Voluntary Arrangement (CVA), the nominee (or other insolvency practitioner), becomes the supervisor of the Company Voluntary Arrangement (CVA).

Once the Company Voluntary Arrangement (CVA) has been carried out, the company's liability to its creditors (who had notice of the meeting of creditors) is cleared. The company can continue trading during the Company Voluntary Arrangement (CVA) and afterwards. A Company Voluntary Arrangement (CVA) can be set up when a company is in liquidation or in an administration, as well as at any other time.

There are many circumstances that may make a company a good candidate for a Company Voluntary Arrangement (CVA), these include:-

• Businesses that want to avoid the stigma of liquidation.
• Businesses that have a potentially successful model but unforeseen circumstances or previous errors have created liabilities that cannot be serviced.
• Businesses that have close ties with their suppliers and do not want to see them lose what they are owed.
• A company needs time to restructure.

The Company Voluntary Arrangement (CVA) Procedure.

A Company Voluntary Arrangement (CVA) proposal is drafted by one of our advisors with the assistance of the directors before passing it to a Licensed Insolvency Practitioner known as the Nominee.

The proposals are then sent to the court, the company creditors and the company shareholders, giving them 14 days notice of the Company Voluntary Arrangement (CVA) creditors meeting:-

At the Company Voluntary Arrangement (CVA) meeting 75% in value of those creditors entitled to and who vote either in person or by proxy at the meeting must approve the Company Voluntary Arrangement (CVA).

The approved Company Voluntary arrangement binds every person who in accordance with the rules had notice of, and was entitled to vote at, that meeting (whether or not he was present or represented at the meeting) as if he were a party to the Company Voluntary Arrangement (CVA).

Advantages of Company Voluntary Arrangement (CVA).

• A Company Voluntary Arrangement (CVA) provides the company directors with more time so preventing the creditors from taking enforcement action via the court system.
• It is a cost effective method for avoiding outright insolvency for a company with financial problems.
• They allow structured payment of crown tax arrears.
• It is a flexible way of dealing with a companies debt problems because the actual CVA proposal can be co-produced by the company directors.
• A Company Voluntary Arrangement (CVA) is legally binding.
• The government, banks and large creditors are keen on promoting the ”rescue culture” and so they are generally prepared to work with troubled businesses to save them.
• The arrangement allows the core business to trade on and so the provides the company directors with continued income.
• Unlike a liquidation and an administration, a Company Voluntary Arrangement (CVA) avoids the need for the Licensed Insolvency Practitioner investigate the affairs of the company and unlike liquidation.
• A Company Voluntary Arrangement (CVA) allows the director’s time to reorganise and restructure the company without the threat of creditor action.
• It provides the company with breathing space so the company can facilitate the rescue procedure.
• A Company Voluntary Arrangement (CVA) is not advertised in the local papers and The London Gazette therefore avoiding negative publicity.
• A Company Voluntary Arrangement (CVA) avoids the need for the Licensed Insolvency Practitioner to report on the conduct of the directors to the Directors Disqualification Unit of the Department for Business, Enterprise & Regulatory Reform (BERR).