What is a Company Voluntary Arrangement?

If your limited company is insolvent, it can use a company voluntary arrangement (CVA) to pay its creditors over a fixed period, allowing it to keep trading.

A CVA allows a company to settle its debts by paying only a proportion of the amount it owes to creditors. Alternatively, a company can come to some other arrangement with its creditors over the payment of its debts.

With the basics of what a CVA is out of the way, let’s now look at the arrangement in more detail.

When and how does a CVA come into force?

A CVA comes into force as soon as the company’s creditors approve a proposal made by the company and there is no appeal.

For a CVA to be approved, the company’s creditors must vote in favour of one by at least 75% (by value), while a minimum of 50% of stakeholders also need to agree to the terms of the CVA before it can be passed.

Convincing both groups that a CVA is in their own best interest is, therefore, of paramount importance.

Once approved, the CVA binds all the unsecured creditors of a company who were entitled to vote on the proposals.

A licensed insolvency practitioner acts as a supervisor and monitors the CVA, which will usually last for 3-5 years.

The effect of a CVA on creditors

Once they are bound by a CVA, a creditor is prevented from taking steps against the company that the terms of the agreement prohibit.

These terms are typically drafted to prevent the creditor from recovering any debt that falls within the scope of the CVA – to do that, they have to go through an agreed mechanism which will have already been agreed in the CVA.

The advantages of a CVA for your company

There are a variety of advantages to having a CVA –

  • The CVA is a rescue plan and allows the company to continue to trade.
  • The directors remain in control.
  • The company receives debt relief and an extended time to repay the debts

CVAs can improve cashflow quickly, while easing pressure from tax, VAT and PAYE during the time the CVA is being prepared.

If things are particularly negative for your company, a CVA may also be able to stop the threat of a winding up petition.

Meanwhile, your company will benefit from an arrangement to pay your debts through the supervisor in monthly placements.

CVAs also tend to have much lower costs than an administration.

Contact our Head of Insolvency Richard Gardiner at rgardiner@thomsoncooper.com if you require any assistance with a CVA proposal.

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