Company Voluntary Arrangement (CVA)

What is it?

A CVA is a formal procedure and a statutory legal binding agreement between your insolvent company and its creditors.

This arrangement is used to enable rescue for viable businesses that need a chance to recover through a longer term arrangement of ring fencing any historical debts, potentially including some form of partial debt write off.

Usually a 2-5 year agreement, its sets out how your company can make affordable repayments to creditors and provide a better outcome than Liquidation or Administration would provide for your particular company.

HOW DO YOU DO IT?

You approach an Insolvency Practitioner to act as your ‘Nominee’. The Nominee will then work with you to produce the proposed agreement which includes the following;

How have you got to this stage
Value of assets, liabilities and charges
A cash flow forecast
Reasons why creditors should agree to the proposal
Duration
Any guarantees available
Evidence that the CVA will provide a better return for creditors

This proposal is then sent to creditors inviting them to vote at a subsequent meeting.

If your company is facing extreme pressure from creditors, a moratorium can be applied for, which in turn prevents creditors or suppliers from taking any further action against you while the proposal is progressed.

Companies should allow up to 8 weeks for implementation, not including further revisions that may need to be made.

what do creditors like to see?

Improved credit control procedures
Deposits being taken up front to reduce risk and loss, but these being protected.
New contracts / customers in the pipeline
Fresh marketing ideas underway
Assets being leased, rather than purchased
Stronger management procedures in place

Who votes on the proposal

All unsecured creditors are invited to vote on the proposal at a creditors’ meeting which is held, usually virtually.

In order for it to be approved, at least 75% of those creditors that chose to vote, must agree by value of debt.

In additional to this, there will be a further meeting held for connected parties, such as directors and employees of which at least 50% (by value of debt) need to agree

who pays

The Insolvency Practitioner may require an upfront payment, in order to assist with the preparation of the proposals. However should the proposals be agreed, the Supervisor will usually take a proportion of the amount made available to creditors.

IMPLEMENTATION

Should the CVA proposals be agreed, the Nominee usually then becomes the Supervisor, and they will provide a report to creditors and the court documenting the outcome of the relevant meetings. The CVA begins once the proposals have been voted on successfully. In most cases you can continue to act as a Director as normal, however in rare situations creditors may press for a change in management dependant on the circumstances.

ADVANTAGES

Whole or part of your company debts can be paid back
The business can continue to trade whilst the Directors retain control of the company
It can provide the time sometimes needed for restructuring or re-organisation
Can freeze interest and charges
Less public than other procedures which require statutory advertising
May be able to terminate onerous contracts as part of the proposals, including leases, supply and employment contracts..
It can be a viable option to help stop or prevent a winding up petition

DISADVANTAGES

It may affect your company’s credit rating for 6 years
Obtaining bank agreement can be important
Some creditors may request alterations and amendments prior to implementation
Secured creditors are not bound by the agreement, therefore they can still withdraw funding or push for Liquidation / Administration
If the proposal is not agreed, you may need to consider Liquidation or Administration.

We have been using CRG for a number of years now and have to say we have been most impressed by the consistency of their performance – the service you receive at the beginning of the relationship is the same service you receive 3 years down the line – efficient, knowledgeable and professional.

We have worked with CRG Insolvency for the past 5 years and continue to be impressed. Their technical knowledge is exceptional and makes them an essential asset in any insolvency and restructure transaction. They are able to slot in to complex projects seamlessly and work as part of the team, and their client care (to both ourselves and the ultimate client) is exceptional."

I would like to express our thanks to you and your staff, for the excellent way you have helped us with our financial difficulties. Your staff were both professional and approachable and always had time to deal with all our questions throughout the stressful times.

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