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Real Business Rescue’s Guide to Company Voluntary Arrangements: A Popular Solution

Every day we are contacted by directors who are fearful because their debts have spiralled out of control and they don’t know how to repay them. One or more creditors may be threatening to wind up your company or there may not be adequate cash flow to meet statutory demands?

Are you a director who wants to keep your company trading whilst endeavouring to keep your creditors satisfied? Real Business Rescue understands your dilemma and can give you through a Company Voluntary Arrangement (CVA), which can be a cost-effective solution to your problems.

That being said, there are certain conditions and requirements which must be met before you can undergo a CVA which is why you should seek the advice and guidance of insolvency specialists.

This guide will provide a brief summary of who is eligible to propose a CVA and the procedure itself, so you can understand just what Company Voluntary Arrangements are and whether or not it is a sound solution for your company’s financial distress.

Company Voluntary Arrangements: The Proposal

A CVA is a proposal by directors to repay a proportion of the company's liabilities to its creditors. In theory, this proposal is drafted by the directors and given to an insolvency practitioner (who at this stage is referred to as the Nominee).

The IP reviews the contents and completes a report that states whether the proposal is fit, fair and feasible. The Nominee obtains all the relevant information from the company and drafts the proposal in a format which is compliant with the Insolvency Act 1986.

This report is attached to the proposal and filed at a court. Both documents are then sent to all creditors, including any secured creditors e.g the bank and a meeting is called. The meeting is not advertised but is used for all creditors to submit their vote on whether they accept the proposal.

Even though creditors and shareholders may not propose a Company Voluntary Arrangement, the plan for repayments must meet with their approval. CVA rules and regulations have established percentages, by value, which must be met in order for the proposal to go forward.

75% of those creditors voting, in value, must agree to the proposal

Of those shareholders voting there must be greater than 50% of the company’s value in agreement

This percentage may sound difficult to achieve however, the proposal includes what is known as a comparison statement. It estimates what creditors are likely to receive if the company ceased to trade and was placed into liquidation, against what they’ll receive in a CVA scenario.

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As the company is being allowed to continue trading and contribute monthly payments into the arrangement, the creditors are more likely to receive repayment and therefore approve the proposal.
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Company Voluntary Arrangement: Formal Insolvency Proceedings with Regulatory Guidelines

A CVA is a formal insolvency procedure and once approved all parties in the arrangement are bound by law to uphold it. For companies in trouble, this can be the perfect solution. It means that the business can continue trading and make efforts to repay its historical liabilities without fear of being harassed.

However, the company needs to pay its future liabilities otherwise creditor action can be taken again! 

Please note that once the arrangement has been approved, the Nominee automatically becomes known as the “supervisor”. It is then his/her duty to monitor the monthly contributions and prepare an annual report which is sent to all parties, so they know everything is going to plan.

Summing up the Benefits of a Company Voluntary Arrangement

 In conclusion, the advantages of entering into a Company Voluntary Arrangement are:

  • The company is protected from historical creditors taking action to recover their debt, so no bailiff visits or winding up petitions;
  • The repayment terms will be spread over a number of years (whichever time period creditors approve), so no immediate demands for repayment;
  • The end of sleepless nights and worry for company directors, who can now spend stress-free time with family and friends.

Let the insolvency specialists at Real Business Rescue discuss the benefits of a CVA for a free consultation. Call us today on 0800 644 6080.

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