The Association of Business Recovery Professionals (“R3”) has recently released a standard form for a Covid-19 Company Voluntary Arrangement (“CVA”) Proposal together with a set of accompanying Covid-19 Standard Conditions.
A Company Voluntary Arrangement or CVA, is a legally binding arrangement between a Company and its creditors which is supervised by a licensed Insolvency Practitioner. The idea behind a CVA is to provide a Company in financial difficulty the ability to be able to continue trading whilst repaying its debts, without the threat of being wound up.
Once approved, creditors will be bound by the terms of the CVA and will be unable to take enforcement action of respect of any pre-arrangement liabilities.
In order for a CVA to be approved more than 75% of those creditors who vote, over 50% of which must be unconnected creditors, must vote in favour of the proposal.
Click here for more information on CVA's generally and the processes involved.
In so far as a Covid-19 CVA Proposal is concerned, to the extent that there is a period of time between the approval of the Proposal and the recommencement of the Company’s trading, that will be known as the “Introductory Period.” The Introductory Period cannot last more than three months.
The Standard Form Covid-19 CVA also provides for a “Breathing Space” period, which starts from the later of (1) the date of approval of the Proposal or (2) the first day of the month following when the Supervisor (in the Supervisor’s absolute discretion) believes the Company has substantially recommenced trading.
For the duration of the Introductory Period (if there is one) and the Breathing Space Period, the Company will not be required to make any payments in relation to the Debts owed as at the approval of the Proposal.
Once the Breathing Space period has elapsed the “Payment Period” will begin and the Company will be required to make monthly payments at a level and over such duration as to enable the Company’s debts to be paid in full. It should be noted however, that the associated standard conditions contain the relevant clauses to allow a variation to be put before the creditors, seeking debt composition at a later date, should the prospects for payment in full change over the course of the arrangement.
It is designed for use by those companies whose businesses have been affected by the Covid-19 pandemic, and which need some time to allow their businesses to become fully operational once again.
Depending on the individual circumstances of the Company, the standard form CVA can be amended to include a debt composition (repayment of less than 100%) from the outset. If the directors are amending the proposal in that way however then consideration should be given to the inclusion of additional clauses to deal with, amongst other things, windfalls or unanticipated increases in profit/annual contribution review and future debts.
To view a copy of the R3 Standard Form Covid-19 CVA Proposal and the associated Standard Conditions please use the links below:
If you or your company has been affected by the Covid-19 pandemic, or you find yourself facing other financial difficulties, please do not hesitate to contact us on 01326 340579 to book a free telephone meeting with one of our licensed Insolvency Practitioners.