What is a Company Voluntary Arrangement? - How a CVA can help Your Business
Free Company Voluntary Arrangement Advice
When your company cannot pay its debts as and when their fall due, a Company Voluntary Arrangement, or CVA, may be the best option available to you to relieve unsecured creditor pressure.
If legal or insolvency action is being threated, or has already commenced, a Company Voluntary Arrangement can for example be used to stop bailiffs attending your premises and seizing goods. If a creditor is threatening to issue a winding up petition, or if one has already been issued, a CVA can be used to prevent the matter escalating further, which could result in a Winding Up Order being made. It can also be used to ease cashflow pressure so that the Company can continue to trade and allow unsecured creditors to be paid over a three to five year period.
In simple terms the purpose of a Company Voluntary Arrangement is to propose a 'deal' to the creditors and if 75% of the unsecured creditors agree, all creditors are then bound by the terms of the proposal. Accordingly once agreed, creditors are not allowed to take any enforcement action against the Company, even if that particular creditor voted to reject the proposal.
Examples of the different types of deals that could be put forward are:
To pay the existing debt over a five year period by way of monthly installments, which could be viewed as effectively obtaining an interest free loan over a five year period, or,
Alternatively only 50%, or some other percentage, of the total debt is repaid by way of instalments over a three to five year period.
A CVA Proposal is drawn up by the directors of the company with the help of an insolvency practitioner, and is then sent to all of the creditors. A decison procedure of creditors, which is essentially a virtual meeting, or a vote by correspondence, is then called. At that decision proceedure the proposal will either be agreed or rejected by the creditors depending on wheher the requisite majority of creditors who vote, vote to approve the proposal.
While the law sets out the information that must be contained in the proposal, it does not say what the offer to the unsecured creditors should be. Accordingly a CVA proposal is extremely flexible and can be adapted to suit the Company's needs and the expectations of the creditors.
The index on the left hand side of this page is split between two distinct legal types of CVA, which are as follows:
- A Company Voluntary Arrangement without a moratorium, which was introduced into law by the Insolvency Act 1986 and
- A CVA with a “moratorium”, which was introduced into law by the Insolvency Act 2000 but only became available for use as and from the 1st January 2003. A moratorium gives company directors powerful options when their company is under stress, as during the period in respect of which the moratorium is in place, creditors cannot take enforcement action against the company. This breathing space from creditor action allows the directors time to formulate a way forward which will hopefully provide a better result for the creditors, employees, and stakeholders as a whole, than if the Company were instead to be liquidated.
By reading the following CVA case studies you will see that there are many different ways in which you could structure your Company's own proposal.
A Company Voluntary Arrangement, with or without a moratorium, could help your company avoid the consequences of statutory demands and winding up petitions as well as other types of creditor enforcement action. Furthermore, an approved CVA will relieve your company of creditor pressure either by the elimination of much of the historic debt, or by allowing your company to clear the accrued debt over several years.
Another benefit of a CVA is that it allows the company directors to continue to run the business and maintain control. The Insolvency Practitioner will be acting as a Supervisor, and as the name suggests, his or her role is to supervise and monitor the Company during the duration of the proposal. How much involvent or work the Supervisor needs to undertake will be determined by the terms of the proposal. For example if it is a monthly payment proposal then the Supervisor will merely wish to check that the monthly payments are received on time, prepare an annual report to the unsecured creditors and when the time comes, adjuicate the creditors claims and pay a dividend.
Often there is significantly less work in a Company Voluntary Arrangement, when compared to a Creditors Voluntary Liquidation for example, and therefore the amount of time needed to be spent is often less, which can make a CVA a cheaper and more cost effective solution when compared to other insolvency options.
A further advantage is that because the Company is contining to trade, the Supervisor is not required to investigate the affairs of the Company and the conduct of the Company's directors and no report to The Insolvency Service is required. This further reduces the work required and also the costs involved. Also the directors will have less involvement in the process of running the arrangemet, thus leaving them more time to concentrate on more important matters, such as running their business.
If you would like a free no obligation meeting to discuss how a Company Voluntary Arrangement or CVA could help you and your company, or to discuss the other potential options available to you, please contact Chris Parkman of Purnells on 01326 340579 or by emailing firstname.lastname@example.org.