A company voluntary arrangement (CVA) is an insolvency procedure that allows companies in financial distress to pay creditors over a period of time. It enables a business to avoid entering liquidation while also protecting directors from investigations by the Insolvency Service.
The process starts when a company contacts an insolvency practitioner. The IP will then discuss the company’s situation with the directors and gather all the relevant information to put together a CVA proposal.
What Is A CVA?
A company voluntary arrangement (CVA) is one of the statutory insolvency procedures that can be used to protect a distressed business from legal action by creditors. A CVA gives a company time to restructure, realise assets and return to profitability in an orderly manner, without the threat of liquidation.
It also provides a realistic prospect of a return for shareholders as a result of the restructuring. It can be a very effective tool in helping to save jobs, maximise creditors’ interests and minimise the damage to the company’s reputation.
How Is It Implemented?
A CVA insolvency is a debt restructuring procedure whereby a company is protected from legal action by its creditors while it works to repay some of the money it owes. This can allow the business to restructure its debts, reduce its outgoings and improve cash flow.
A CVA proposal is prepared by the company’s directors or an insolvency practitioner (IP). Once it has been approved by a majority of the company’s creditors, it becomes legally binding on both the company and its creditors.
Implementation: The company and the IP work together to implement the terms of the CVA and start working on repayments of debts. The IP also monitors the company’s progress and reports to creditors on a regular basis.
What Happens After Approval?
A CVA is a legal arrangement which gives a company time to pay its debts back, and saves the business from administration or liquidation. It is a viable option for many businesses which are struggling financially and have a good chance of survival if implemented correctly.
The first step is to prepare a proposal which will be submitted to all creditors. This must be fit, fair and feasible and contain detailed financial forecasts for up to five years.
Who Is Eligible For CVA?
If you are a company director and you want to rescue your company but are not financially able to do so on your own, then a CVA could be the solution. This is a legally-binding tool which can stop creditors filing winding-up petitions and allow the company to keep trading.
The process begins when the directors, or an insolvency practitioner acting as Nominee, formulate a proposal to put to creditors for approval. The proposal must be backed up by projections of expected cash flow.
Once the proposal is approved by 75% of your creditors – including HMRC who are a preferential creditor – the CVA becomes binding. It will then be recorded on the company’s file at Companies House and all of your unsecured creditors must accept it.