A Company Voluntary Arrangement (CVA) allows the company to come to a contractual arrangement with its creditors in relation to its debt, which the directors recognise it is no longer able to pay in full. The arrangement will be specific to the circumstances of the company, but the directors usually make a proposal to the creditors that the company will pay them back in part over a reasonable timescale, based on what the company can afford. The company must be able to demonstrate, before entering a CVA, that it will be able to trade profitably in the future, and generate enough profits, after tax, to pay the proposed dividend to creditors. In conjunction, inter-company debt may be written off or postponed, and/or shareholders inject more capital into the business.
Interest and charges are effectively frozen at the time the CVA is accepted. Because the company is paying its creditors from future earned income, the company does not need to include or sell its fixed or current assets. It also means that the company continues to trade under the control of the directors, while reporting regularly to the appointed insolvency practitioner to check that the proposals agreed by the creditors are being met.
Creditors get to vote on the proposals: whether to accept, reject or modify them. 75% of creditors present at the meeting called specifically for the purpose of considering the proposals have to vote in favour for the proposals to be accepted, and of those voting, 50% should be unconnected to the company. If the creditors do vote in favour, then all creditors, including those that did not vote or voted against, are bound by the decision of the voting creditors, and the arrangement can go ahead.
Once approved, creditors cannot take action against the company in respect of the debt included in the CVA, but the company must continue to pay its ongoing liabilities on agreed terms with its current suppliers. Increasingly CVAs are being used to renegotiate onerous contractual terms with landlords and key suppliers.
Nominee and Supervisor
We can support the directors and the company through the CVA process. We will work with you to design and quantify the company’s proposals, and assist with the calling of the meetings required to consider the terms. Throughout the planning process we act as Nominee. If the proposals are approved, we then act as Supervisor to make sure that the proposals are met. We will review the company’s financial position and contribution regularly to ensure that the CVA is completed. If you are a creditor being asked to support a CVA, we can assist you with your assessment of the proposals and your voting decision.
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