Updated: 5th February 2020
If you're the owner or director of an Irish company and you'd like renegotiate terms with creditors to allow for lower repayment requirements, while also centralising multiple debt obligations into a single monthly contribution, then you may want to continue reading the following guide on company voluntary arrangements (CVA).
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Advisory ServiceWhat is a Company Voluntary Arrangement (CVA)?
A CVA in Northern Ireland is a formal insolvency procedure in which a company proposes revised repayment terms to one or more creditors with the help of an appointed insolvency practitioner. This process is the most popular business rescue method in the UK and for good reason - it is a mutually beatifically arrangement that ensures creditors are repaid in a reliable manner while also granting financial leniency to the distress company.
What are the Main Benefits of a CVA?
- Proposes revised repayment terms to multiple creditors at once with minimal effort.
- Provides a higher rate of approval than informal negotiations because the process is guided by a licensed insolvency practitioner and is carried out through the Court. Therefore, creditors are more willing to approve a CVA over standard proposals submitted independently via email or over the phone.
- The agreement is proposed by an IP during a creditors' meeting. All creditors that are involved in the negotiation will be given a notice of the meeting to ensure that they're able to show up and give their approval vote.
- Only a certain percentage of your creditors have to agree to the proposal in order for it to be binding on every creditor who was given notice of the creditors' meeting.
- Once approved, the arrangement centralises all of the covered unsecured debts into one monthly payment requirement.
- While the CVA is active the involved creditors will not be allowed to contact you in regard to payments, as all correspondence will be forwarded to the nominee (IP) you've appointed to act as supervisor.
- Places a protective moratorium around the company while the appointed insolvency practitioner works to finalise the deal with creditors. In 2002 Northern Ireland insolvency law implemented provisions that allow for a moratorium to be placed around a company during the proposal stage of a CVA. If the High Court believes that a moratorium is applicable then it will protect the company from aggressive legal actions for a period of up to 28 days while the appointed nominee works to gain creditor approval at the ensuing creditors' meeting.
What is Involved in the CVA Process?
A CVA can be proposed by:
- the directors of an insolvent company
- a company administrator (if a Northern Ireland based company administration order has already been granted by the Court)
- an appointed liquidator (if a Northern Ireland based company is in the process of being wound up)
The first step in entering into a CVA voluntarily is to consult with an insolvency practitioner to discuss your case. During this initial consultation you'll be able to determine whether a CVA is the best course of action and begin the preliminary stages of putting together a formal proposal with the assistance of the IP. To create the proposal you would collaborate with the IP to formulate a 'statement of affairs' based on the financial status of your company and its income/expenditure projections. The creditors may propose modifications to the arrangement but these must be approved by the majority in order to take effect.
If the CVA is approved it becomes binding on all creditors that were given notice of the creditors' meeting. Once the arrangement is in effect your company will be given a second chance at recovering from debt and you'll no longer have to worry about the threat of winding up, as long as you don't default on the agreement.
Keep in mind that you may have to sign a personal guarantee or use some of the company's assets as collateral in order to obtain secured financing that can be put towards a down-payment, which may be needed to persuade creditors into accepting the CVA. If you default on a loan that is secured by an asset then that specific asset or class of assets could be seized during a company administration process, which would end in the compulsory liquidation (Northern Ireland) and dissolution of your business. If you default on a business loan that is secured by a personal guarantee then you would be held personally liable for the debt that you guaranteed.
If you're interested in entering into a CVA or if you have any questions regarding corporate insolvency in Northern Ireland, feel free to contact us for free advice. You can also call our support line on 0800 644 6080 for a free consultation.
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