If your company has escalating debts and creditors are chasing you for payment that your company cannot afford, there is little time to waste.
A Company Voluntary Arrangement (CVA) is a legally binding agreement introduced by the government in 1986 as an alternative to companies facing liquidation.
It's used mainly by struggling businesses looking to repay the Company’s creditors over a period of time (usually up to 5 years) whilst continuing to trade with the prospect of once again regaining profitability. The procedure is legally binding which provides protection against legal actions commenced by creditors, allowing the Company to freeze all its unsecured debts and offer a revised repayment plan under new terms.
Providing the Company has debts of £15,000 or more, an offer to repay the debt over a period of time by way of one monthly affordable payment is offered to its creditors. With an achievable repayment structure set out, the arrangement is overseen by a Licensed Insolvency Practitioner who acts as Supervisor and sets out the parameters of the CVA in a proposal and monies collected are distributed to creditors of the CVA on a pro rata basis.
Depending on the circumstances of each company the proposal of a CVA can repay creditors in full or repay a percentage of the debt.
Provided you keep up with the one monthly affordable payment, the company is usually debt free in 60 months or less. Upon the CVA being successfully completed, all other outstanding debt is written off.
At Clark Oliver we work with you to extract all of the information required to draft your proposal, as well as assisting in putting together cash flow forecasts for your business. These forecasts help determine the monthly contribution amount that needs to be offered to your creditors within the CVA, which forms the basis of the amount of debt you will pay back.
There are many benefits of a CVA including:
The following steps provide a brief explanation to the CVA process:
Once you have contacted us and the relevant information has been provided our Insolvency Practitioner (IP) will determine whether a CVA is the best course of action for your company and its creditors.
If a Company Voluntary Arrangement (CVA) is recommended as the best course of action and you would like to proceed, you would appoint the IP to draft a CVA proposal for your creditors.
Once the IP has drafted a CVA proposal it will need to be reviewed by your company’s directors and the necessary changes will need to be made if required. If you do not feel confident that the company is able to adhere to the terms of the CVA and a realistic draft proposal cannot be presented, then the IP may recommend an alternative form of action, like a Liquidation of the company. The Insolvency Practitioner must be confident that the CVA has a realistic prospect of success in order for him/her to act as the Nominee.
The final draft of the CVA is filed at the local County Court. Final signed copies of the proposal are then sent to all of the company’s creditors. It is a requirement for the CVA proposal to be sent at least 3 weeks before the creditors’ meeting is held.
The IP acting as Nominee convenes a meeting of all of the company’s unsecured creditors. In most cases creditors themselves tend to be absent at the creditors meeting, as they may send a representative to act on their behalf or send a proxy form by electronic method to vote to accept or reject the CVA proposal. During the creditors meeting the CVA will be proposed to creditors by the IP and creditors (or their representatives) are given the opportunity to question or make modifications/amendments to the proposal. At the same time a meeting of the company’s shareholders will take place.
During the creditors’ meeting a vote will be held and provided an amount of creditors responsible for 75% or more of the company’s unsecured debt vote in favour of the CVA, then it is approved. If creditors request modifications to the proposal, then the same rule of 75% majority approval applies. This can be a worrying part of the process. However, with the correct information provided the IP takes care to draft a thorough and detailed CVA, and to communicate with creditors leading up to the meeting, then there should be no problem in obtaining approval in most cases. As for the shareholders’ meeting – at least 50% of shareholders must vote in favour of the proposal for it to be approved.
If both of the creditors and shareholders meetings result in the approval of the proposal then the chairman (the appointed IP – who now becomes the Supervisor of the CVA) will need to issue a report to all of the company’s creditors and the Court, within 4 days of the meeting. This report will provide an overview of what happened during the meeting, who was present, and how each creditor voted.
Once the CVA is approved all legal actions taken against the company are frozen and no further actions can be taken unless the terms of the CVA are not adhered to by the Company.
With the CVA now in place your company will be expected to make the projected monthly contributions to a trust account. As long as these contributions are made on time the business will continue operating without the looming threats from its creditors it previously owed money to. If, however, the company defaults on making monthly contributions, the likely consequence will be Compulsory Liquidation. Please note that if the company breaches the terms of its’ Company Voluntary Arrangement the Supervisor of the arrangement (the IP) will almost certainly be required to petition to wind the company up by means of a Compulsory Liquidation.