What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement (CVA) is a formal arrangement with creditors which enables a company to continue trading while repaying its historic debts at an agreed rate and over an agreed period of time.
How does it work?
The directors of a company can initiate a CVA by submitting a proposal to company creditors. Provided that at least 75% of creditors (and not less that 50% of unconnected creditors) by value are in agreement, then all of the company’s creditors are bound by the arrangement and the debts owing to them at that point are frozen.
How long does a CVA last?
A CVA will often, but not always, last for a period of 3 to 5 years. During this time the company will make regular contributions to the CVA for the benefit of creditors. Unlike other insolvency processes, a CVA allows for the company’s management to retain control over the business with the appointed insolvency practitioner taking only a supervisory role. One condition of a CVA proposal is often that the insolvency practitioner must make annual distributions to creditors out of the regular payments received by the company.
Good news for creditors
Although the CVA process will ordinarily result in creditors compromising a proportion of their debt, it often has significant benefits which make it more attractive that other insolvency processes. Provided the terms of the CVA are complied with by the company, then creditors can expect a better return on their debt than they would get if the company was wound up. Furthermore, through continued trading, the creditors (who are often suppliers) retain their customer and all future debts arising subsequent to the date of the CVA will be paid in full.
Good future trading prospects
Provided the company fulfills the requirements of the CVA proposal then it will exit the CVA at the end of the agreed timeframe. The company will continue to trade, moving forward with any unpaid element of the historic debt being written off as agreed by the terms of the CVA. However, should the company default on the terms of the CVA then the insolvency practitioner will convene a meeting of creditors at which the terms of the proposal will either be varied to enable the CVA to continue or, if variations cannot be agreed, the company may be placed into an alternative process such as administration or liquidation.
The next step
If you think that a CVA may be the best way ahead for your business, please get in touch with our team.