What is a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is an insolvency procedure that allows a financially troubled company to reach a “binding” agreement with its creditors about payment of all, or part of, its debts over an agreed period of time. A Company Voluntary Arrangement (CVA) can be proposed by the Directors of the company (but not by the shareholders or creditors), the Administrator of a company, or the Liquidator of a company.
Where very aggressive creditors are involved and before the CVA proposals are made, an application can be made to the court for a “Moratorium” which prevents creditors from taking action against the company or its property for up to 28 days. When the CVA has been proposed, a “Nominee” (who must be an Insolvency Practitioner – IP) reports to the court on whether a meeting of creditors and shareholders should be held to consider the proposal.
The meeting decides whether to approve the CVA. If 75% of the unsecured creditors (by £value) agree to the proposal, it is then binding and all the creditors, who had notice of the meeting and were entitled to vote, are bound by the terms of the arrangement.
Once approved, the “Nominee” Insolvency Practitioner becomes the “Supervisor” of the Company Voluntary Arrangement (CVA) for the duration. The company can continue trading during the CVA and once the Arrangement has been completed, is free of any liabilities to its creditors.
The Company Voluntary Arrangement (CVA) Procedure
The CVA proposal is drafted by the Directors with the assistance of an Insolvency Practitioner, known as the “Nominee” The proposals are then sent to the following stakeholders giving them 14 days notice of the CVA creditors meeting:
What makes a successful Company Voluntary Arrangement (CVA)?
- The business must be viable for a CVA to work.
- The Directors must be honest about the company’s affairs and show the true financial position.
- A CVA must offer the Creditors more money than would be received if the company went into liquidation.
- The company must have sufficient working capital to trade and pay day to day expenses and at least be trading at breakeven.
- The company should have a full order book or some business in the pipeline.
What are the advantages of a Company Voluntary Arrangement (CVA)?
- A CVA is a cost effective method for avoiding outright insolvency for a company with financial problems.
- A CVA is legally binding.
- A CVA allows the Directors time to reorganise and restructure the company without the threat of creditor action.
- A CVA is a private matter and does not appear in the papers, so avoiding negative local publicity.
- A CVA allows structured payment of Crown tax arrears.
- A CVA avoids the need for the Insolvency Practitioner to investigate the affairs of the company and report on the conduct of the Directors.
- A CVA allows the Directors to remain in control of the company.
A Partnership Voluntary Arrangement-Pva.
There are a number of options available to the Partners and/or the Creditors, under the provisions of the Insolvency Act 1896, such as:
- The formal winding up of the partnership as an unregistered company, possibly in conjunction with the bankruptcy of one or more of the partners.
- A Partnership Administration Order-PA-(similar to the standard administration order)
- A PVA, possible in conjunction with “interlocking “ IVA’s (SIMIVA) of one, some ,or all the partners.
A PVA is similar to a CVA (Company Voluntary Arrangement) in that it is a formal arrangement with the partnership’s creditors, for an agreed period and under terms agreed by the creditors. It can also be a useful tool for Recovery of the business interests
In a PVA, unlike an IVA or CVA, there is no protective Interim” order available, so depending on the pressure from aggressive creditors at the time, an Administration order is first obtained to provide protection to the partnership.
Once a PVA is approved, the partnership is protected from the actions of its creditors, so that it can:
- Continue its business for the period agreed and Recover
- Make future profits and payments to the creditors
- Realize assets on better terms than via a “forced” sale
It is important a PVA, or indeed a CVA, is not sought unless the business is viable or is asset rich. Partnership law is complex and protecting partner’s personal assets can be complicated.
NOTE. A PVA or Partnership Voluntary Arrangement follows the same process as a CVA, but is used where the business is a Partnership as the partners are jointly and severally liable. A PVA has the same benefits as a CVA.
For information on an IVA or Individual Voluntary Arrangement, please click here.
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