Updated: 4th January 2021
A Company Voluntary Arrangement - often known as a CVA - is a legally-binding insolvency procedure which essentially functions as a formal payment plan between an indebted company and its outstanding creditors. A CVA allows for company debts to be paid back over an agreed period of time, typically 3-5 years, at a rate which is affordable to the company and agreeable to the creditors. Depending on how much the company can afford to repay, some debt may be wiped out completely.
While a CVA may look to be an appealing prospect, not all companies will qualify for one. This is because at least 75% (by value) of voting creditors must agree to the CVA being implemented before it is made legally-binding. A creditor is only likely to give their consent to such a process if they are confident that the company will be able to maintain the payments for the duration of the CVA period.
A CVA can only be entered into under the guidance of a licensed insolvency practitioner who will act as the nominee and supervisor for the process. They will begin by formulating a payment proposal based on the company's ability to repay, and present this to creditors who will vote on whether or not they agree to the terms on offer.
When a struggling business appears to be viable with the prospect of becoming profitable again, and the directors are willing to continue, a CVA may be an ideal way to protect against legal actions taken by creditors. The terms of a CVA are likely to provide lower monthly outgoings for the indebted company and would produce a binding contract for all creditors increasing the likelihood of returns.
The terms of a CVA proposal will specify the percentage of the debt that the creditors will be paid back during the period of the company voluntary arrangement. This will depend greatly on the level of debt owed by the company, weighed against its ability to make repayments based on current and/or future cash flow projections.
Before getting too excited about the benefits of using a CVA to facilitate a turnaround it is important to verify that your company is indeed eligible and/or suitable for the procedure. Here are some key points to consider:
If you feel that all your business needs is breathing space to recover by way of a realistic CVA then consider our in-depth guide on company voluntary arrangement.
The contents of the CVA proposal are required by law to meet the guidelines of The Insolvency Rules 1986 – Rule 1.3. A typical CVA will contain basic information about the insolvent business and the appointed nominee who must be a licensed insolvency practitioner (i.e. - names, addresses, and contact details). There will be an in-depth introduction to the company's affairs, including information about employees, profits, and significant transactions or events.
The insolvency practitioner you appoint as nominee will work with your company's directors to make this section as accurate and detailed as possible. After the introduction will be the main proposals, followed by information about the company's creditors and debts. Keep in mind that you will need to be prepared to provide documentation and facts about your company during the drafting of the CVA.
Usually about 1 month will pass between when you appoint the insolvency practitioner to produce the CVA and when it is posted to creditors. After that, about 3 weeks later the creditors' meeting should be held. So altogether the process tends to take about 6-8 weeks to complete on average. However, keep in mind that after this you'll be required to make regular contributions to the designated trust account for up to 5 years (depending on the length of the CVA).
A Company Voluntary Arrangement can be proposed at any time up until a winding up order is granted against your company. If you have already been served a winding up petition, or your creditors are threatening to issue one then you still have time to set up a CVA and save your business if you act quickly! Once the winding up order is granted compulsory liquidation will commence and at this point the possibility of facilitating a recovery through any means is unlikely.
If your company enters into administration, the administrator may propose a CVA during the course of the procedure as a way to bring about a turnaround. Likewise, a liquidator may propose a CVA if it is thought that the arrangement would be more beneficial to creditors than to liquidate the company's assets. Likewise a company in a CVA can also enter into liquidation.
The main expense you'll have to cover when setting up the arrangement is the cost of instructing an insolvency practitioner to formulate and present the CVA proposal on your behalf. This is known as the nominees fee and will vary depending on the amount of work involved, the particulars of your case, and the insolvency firm you choose to deal with. However, on average the nominee fees will be between £5000 and £10000 and the cost of supervising the arrangement will be decided by the creditors. As these fees come out of the money paid to the creditors it is the creditors who agree the fees of the insolvency practitioners.
Here at Real Business Rescue we offer highly competitive rates, and we've helped countless businesses avoid liquidation and dissolution through CVAs. Contact us for a free consultation and we can give you a more accurate assessment of how much the procedure will cost your company.
CVA's can be particularly effective solutions for companies that need to retain certain certifications or contracts which cannot be transferred to another company. It must be remembered that there are some down sides to CVA's, a CVA will affect a company's credit score and sometimes companies will find it difficult to receive their normal supplies.
At Real Business Rescue our insolvency practitioners have extensive experience constructing CVAs that have a very high rate of approval and long-term success. For a free consultation send us an email or call us on 0800 644 6080.
Still have questions about Company Voluntary Arrangements? View our CVA - FAQs for more answers.
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