What is a Company Voluntary Arrangement (CVA)?
A company voluntary arrangement is a legal procedure, which allows the directors to retain the control of the company and also enabling them to enter into a binding agreement with the company’s creditors detailing how the company’s debts and liabilities will be dealt with under the provisions of the Insolvency Act of 1986.
In essence a company voluntary arrangement allows a company with historical cash flow problems to repay its liabilities, either in part or in full (including the Inland Revenue and VAT) over a period of time. Once the company’s liabilities have been restructured any monies generated by the company e.g. book debts can be used as working capital rather than paying its old debts.
In certain circumstances a company may be able to apply to Court to “ring fence” its position and protect its assets prior to asking its creditors to approve the CVA.
How is a Company Voluntary Arrangement implemented?
A company voluntary arrangement requires the approval of a majority of 75% of the voting creditors. If approved, the CVA binds all creditors who were sent notice of the meeting irrespective of how they voted.
FAQ’s
How much does the company repay its creditors?
An Insolvency Practitioner will review the financial position of a company and then calculate how much it can afford to repay its creditors, on typically, a monthly basis.
Will the bank, VAT and the Inland Revenue support the CVA?
Essentially a CVA allows a company with historical cash flow problems to repay its liabilities, either in part or in full (including the Inland Revenue and VAT) over a period of time. Once the company’s liabilities has been restructured any monies generated by the company e.g. book debts can be used as working capital rather than paying its old debts.
A CVA proposal will generally be accepted by creditors if they can see that it will provide a viable solution. In the majority of cases the bank will normally be secured (as are any finance companies). They will therefore stay outside of the CVA, all the pre CVA creditors will have their debts in the arrangement and will be paid out of the contributions made monthly. The balance of proceeds can then be used as new working capital to drive the business forward, hopefully successfully
Will suppliers still supply the company?
You may find it surprising but in our experience nearly all suppliers will continue to support a company in a CVA. They would rather take a chance in getting something back from the old debt rather than see the company go into liquidation and almost certainly get nothing in that scenario.
Does anyone interfere with the running of the company during a CVA?
As long as the company adheres to the terms of the CVA, the company is run under the control of the directors without any outside interference. There are certain reporting requirements to a CVA Supervisor, which are not normally onerous.
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