Rescue Plan – CVA

What is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement is a written agreement between the company’s creditors and the insolvent company.

This process allows your company to make a legally binding agreement with creditors over debt repayments terms and allows the company to pay only a proportion of the company’s debts within a certain time frame.

The main advantage of this is that if 75% of the company’s creditors (in value) agree to, for example being paid 50% of the amount they are owed, then this binds the remaining 25% of unsecured creditors, allowing the company to continue to trade and allowing a moratorium preventing creditors from taking action against the company.

Are you eligible for a CVA?

This procedure is usually adopted by insolvent businesses that have a number of existing creditors. The company may be eligible to arrange a CVA if it is insolvent and if the company is able to show that there is enough capital in the future to be able to repay a proportion of its debts.

What is the CVA process and how does it work?

1. The company will need to make a proposal

We can help you with considering the draft proposal arrangement, which is to be put to the creditors after investigating the company’s affairs.

2. Application for a moratorium

This application will prevent other creditors and customers from taking any legal action against the company whilst a CVA proposal is being discussed.

3. Meeting of creditors

The creditors’ meeting allows all the company’s creditors to discuss the proposal and raise any concerns they may have. This meeting may take place in person or they may vote via email or post.

The CVA proposal must be approved by at least 75% of the creditors by value. Therefore if the company has four creditors owed £25,000 each and if three of the creditors agree to the proposal, it then binds the fourth creditor, even if he objects to the proposal, as he believes that is not being paid a fair amount.

4. Commencement of CVA

The company will then make monthly payments to the creditors as arranged in the CVA agreement. It is important for the company to make these payments as and when they fall due otherwise the creditors may issue for a compulsory liquidation.

Advantages and Disadvantages of CVA

Advantages

  • An informal process so it is usually quicker and cheaper than administration.
  • Unsecured creditors won’t take action against you while you comply with CVA as they are bound by it.
  • Small companies obtain a moratorium from others taking legal action.
  • The Directors remain in control.

Disadvantages

  • This may lead to an administration, as it is expensive.
  • CVA’s will also damage the company’s reputation with its suppliers/customers.
  • There is no moratorium for larger companies.
  • Short moratorium – after it expires the creditors can petition for company’s insolvency by serving a winding up petition in seeking the company go into compulsory liquidation.
  • The CVA only binds secured creditors if they agree to be bound. They may choose to reject the CVA proposal.

Please call or email us for a free initial confidential discussion

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