Company Voluntary Arrangement (CVA) Specialist Advice
A Company Voluntary Arrangement (“CVA”) is a legally binding contract between the insolvent Company and its creditors whereby typically the insolvent Company repays between 25% and 100% of its debts over a period of 3-5 years.
The terms of this contract are as proposed by the Company and approved by the creditors at a meeting of creditors. This meeting must be held at a location convenient to the creditors of the insolvent Company.
In excess of 75% (by value) of the creditors who vote at the creditors meeting need to approve the proposals to get a CVA passed however Bridge Newland Limited have good success rates for CVA’s therefore contact us for further details.
What is the process for obtaining a CVA for my Company?
The process is three-part: firstly, a licensed insolvency practitioner is approached by the directors to advise the company; second, the licensed insolvency practitioner becomes the ‘Nominee’ and structures the CVA deal (the ‘proposal’) to be put to creditors; and third, the CVA is approved by creditors and the Nominee becomes the ‘Supervisor’, supervising the directors in the ongoing management of the company and ensuring that the terms of the CVA deal are adhered to.
In order for a CVA to be appropriate, the core business must be viable and the company must be able to rely on adequate working capital going forward. The company’s liabilities crystallise on the Supervisor’s appointment, and from that point forward the company has a clean slate – but, crucially, the company must pay its ongoing obligations as and when they fall due, or the CVA will fail. Essentially, the directors must be confident that the company will be in a position to meet all of its ongoing trade and tax liabilities and make regular contributions to the Supervisor to pay CVA creditors.
Are my creditors likely to agree to a CVA?
Whilst directors often worry that creditors will be unwilling to support a CVA deal, it is often the case that suppliers would prefer to receive a proportion of their outstanding debt and retain a customer, than see their customer fall into liquidation and most likely receive no return at all. Directors also worry that staff will desert them. As there is continuation of employment in a CVA, there is no benefit to staff walking away – by doing so, they not only forgo any entitlement to redundancy payments or pay in lieu of notice, they also render themselves ineligible for job seekers’ allowance and other social security benefits. On the other hand, a CVA can enable a trading company to streamline its operation by reducing staff, if it needs to, with no cost to the business (where redundancies are made as a result of insolvency, the employees’ statutory entitlements are met by the Government’s Redundancy Payments Service).
The main advantages of a CVA are…
- The Director’s retain control of the Company.
- It is a process which promotes recovery of the business.
- The Insolvency Practitioner is not required to submit a report on the conduct of the Directors.
- There is often a better return to creditors than a Liquidation process.
- It is possible to obtain court protection from creditors commencing or continuing with legal actions to recover their debts (a moratorium).
- All creditors who are entitled to vote are bound by the arrangement (whether or not they voted).
- Often more employee jobs are saved.
The main disadvantages of a CVA are…
- It is often difficult to obtain consent to the proposals given the level of creditors needed to support the process and the fact that H M Revenue & Customs have strict guidelines set, for CVA proposals to comply with, before they offer their support to the arrangement.
- Reductions in sales and credit terms are often experienced during ongoing trading, as a result of the inability of stakeholders to differentiate a CVA from other formal insolvency processes.
- The process can be costly given the level of work required to draft the proposals.
- Success rates can be poor given the high burden of paying ongoing profits into an arrangement for up to 5 years.
There are considerable advantages to CVA, but the process requires realistic forecasting and long term commitment – most CVA deals last for between three and five years.
Free CVA Guide – Download Here
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