CVA

 

A Company Voluntary Arrangement (CVA) is an insolvency procedure allows a financially troubled company to reach a binding agreement with its creditors about payment of all, or part of, its debts over an agreed period of time. A Company Voluntary Arrangement (CVA) can be proposed by the directors of the company, the administrators of the company, or the liquidator of the company.

Before the Company Voluntary Arrangement (CVA) proposal is made, an application can be made to court for a moratorium which prevents creditors from taking action against the company or its property for up to 28 days, although if an administrator is in office the company will already be covered by the moratorium arising from the administration. A Company Voluntary Arrangement (CVA cannot be proposed by creditors or shareholders.

When the Company Voluntary Arrangement (CVA has been proposed, a nominee (who must be an insolvency practitioner) reports to court on whether a meeting of creditors and shareholders should be held to consider the proposal. The meeting decides whether to approve the Company Voluntary Arrangement (CVA). If 75% of the creditors agree to the proposal, it is then binding and all creditors who had notice of the meeting and were entitled to vote. All creditors who had notice of the meeting are bound by the terms of the arrangement.

If the meeting of creditors and shareholders approves a Company Voluntary Arrangement (CVA), the nominee (or other insolvency practitioner), becomes the supervisor of the Company Voluntary Arrangement (CVA).

Once the Company Voluntary Arrangement (CVA) has been carried out, the company's liability to its creditors (who had notice of the meeting of creditors) is cleared. The company can continue trading during the Company Voluntary Arrangement (CVA) and afterwards. A Company Voluntary Arrangement (CVA) can be set up when a company is in liquidation or in an administration, as well as at any other time.

FREQUENTLY ASKED QUESTIONS

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Who Can Benefit From A Company Voluntary Arrangement (CVA)?

  • Businesses that have experienced trading difficulties since start up and need time to prove their business model.

  • Businesses that want to avoid the stigma of liquidation.

  • Businesses that know they can be profitable and successful in the future but need a bit of time.

  • Businesses that have close ties with their suppliers and do not want to see them lose what they are owed.

  • Business that need some time to put together a new business plan for the company.

  • Businesses that will be profitable in the short term but are under pressure from creditors

  • Businesses that are profitable but have experienced bad debts or late payers this affecting the short term health of the company.

  • Businesses that need to restructure.

  • Businesses that have a good business model with a full order book redundancy but do not have the cash flow problems.

  • Companies that wish to wind down trading in an orderly fashion

  • Companies that wish to close down over a certain time.

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The Company Voluntary Arrangement (CVA) Procedure.

A Company Voluntary Arrangement (CVA) proposal is drafted by the directors with the assistance of a Licensed Insolvency Practitioner known as the Nominee. The proposals are then sent to the following stakeholders giving them 14 days notice of the Company Voluntary Arrangement (CVA) creditors meeting:-

  • The Court
  • The company Creditors
  • The company shareholders

At the Company Voluntary Arrangement (CVA) meeting 75% in value of those creditors entitled to and who vote either in person or by proxy at the meeting must approve the Company Voluntary Arrangement (CVA).

The approved Company Voluntary arrangement binds every person who in accordance with the rules had notice of, and was entitled to vote at, that meeting (whether or not he was present or represented at the meeting) as if he were a party to the Company Voluntary Arrangement (CVA).

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What makes a successful Company Voluntary Arrangement (CVA).

  • The company directors must be honesty about the company’s affairs.

  • The business must be viable for a Company Voluntary Arrangement (CVA) to work.

  • The company directors must be hard working and determined for the company to succeed.

  • The company directors must show the true financial position of the company.

  • A Company Voluntary Arrangement (CVA) must offer the creditors more money than would be received if the company went into liquidation.

  • The company must have sufficient working capital to trade and pay day to day expenses.

  • The business must at least breakeven.

  • The company should have a full order book or some business in the pipeline.

  • The creditors must support the rescue process. It is therefore advantageous for the company directors to canvass support of the creditors in advance of the Company Voluntary Arrangement (CVA).

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Advantages of Company Voluntary Arrangement (CVA).

  • A Company Voluntary Arrangement (CVA) provides the company directors with more time so preventing the creditors from taking enforcement action via the court system.

  • The government, banks and large creditors are keen on promoting the ”rescue culture” and so they are generally prepared to work with troubled businesses to save them.

  • Company Voluntary Arrangements allow structured payment of crown tax arrears.

  • A Company Voluntary Arrangement (CVA) is a cost effective method for avoiding outright insolvency for a company with financial problems.

  • A Company Voluntary Arrangement (CVA) is a flexible way of dealing with a companies debt problems because the actual CVA proposal can be co-produced bt the company directors.

  • A Company Voluntary Arrangement (CVA) is legally binding.

  • A Company Voluntary Arrangement (CVA) allow the core business to trade on and so the provides the company directors with continued income.

  • A Company Voluntary Arrangement (CVA) provides the company with breathing space so the company can facilitate the rescue procedure.

  • A Company Voluntary Arrangement (CVA) allows the director’s time to reorganise and restructure the company without the threat of creditor action.

  • A Company Voluntary Arrangement (CVA) costs less that other more serious insolvency procedures such as receivership or administration.

  • A Company Voluntary Arrangement (CVA) is a private matter so the company will not appear in the papers sp avoiding negative publicity.

  • A Company Voluntary Arrangement (CVA) allows the directors of the company A Company Voluntary Arrangement (CVA) avoids the need for the Licensed Insolvency Practitioner investigate the affairs of the company and unlike liquidation.

  • A Company Voluntary Arrangement (CVA) avoids the need for the Licensed Insolvency Practitioner to report on the conduct of the directors to the submit a report to the Directors Disqualification Unit of the Department for Business, Enterprise & Regulatory Reform (BERR).

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What is the financial structure?
 
Typically a monthly contribution is made into the CVA, which is distributed to creditors.

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Are my current creditors frozen?
 
Yes. Once the CVA is in place no enforcement action can be taken by pre-CVA creditors.

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How long do I have to repay my creditors?
 
Every CVA is different and a sensible time frame should be set.

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What if I can’t repay my creditors back in full?
 
A pence in the pound offer can be made. Remember this will ultimately need to be supported by a business forecast.

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How is a CVA approved?
 
75% of unsecured creditors by value must approve a CVA. Remember this is 75% voting on the day. 50% of non-associated creditors by value must also vote in support.

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Who controls the company?
 
The existing Directors and management.

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What are the costs?
 
A Nominees fee will be charged, typically £2,000 - £3,000 depending on the business size to establish the CVA.

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How long will it take to get approved?
 
Typically 28 days from the outset.

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What happens if the company can’t make the contributions? 

  • Some leeway is built into the structure on timing of payments

  • A proposal can be made to vary the terms of the CVA

  • The Company passes into Liquidation

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What happens to my secured creditors?

  • Secured creditors do not vote in a CVA

  • They will need to be comfortable with the CVA and will often run, as before the CVA, during the CVA

  • Remember secured lenders prefer a solution not a problem

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Do they work?
 
Not always. It will depend on the construction and the amount of pre-planning and in some cases a little bit of luck

 

 

Synergy Financial Solutions Limited, Heritage Exchange, South Lane, Elland HX5 0HG Tel. 0844 504 0124 Fax. 0844 504 0125

Synergy Financial Solutions Limited is Regulated by the Ministry of Justice in respect of regulated claims management activities. Registration Number CRM19138. Its registration is recorded on the website www.claimsregulation.gov.uk. Synergy Financial Solutions Limited is licensed by the Office of Fair Trading for Credit Brokering, Debt Adjusting and Debt Counselling. Licence number 626155. Its registration is recorded on the website www.oft.gov.uk