Company Voluntary Arrangement (CVA)
A company voluntary arrangement (CVA) is a legal agreement between a company and its creditors to pay back all or part of its debts over an agreed period of time. The arrangement is overseen by an insolvency practitioner, who acts as a middleman between the company and its creditors. If the arrangement is approved by creditors, it becomes binding on all parties involved. A CVA can be an effective way for a company to restructure its debts and avoid insolvency. However, it should only be used as a last resort after all other options have been considered. If you are considering a CVA, it is important to seek professional advice from an experienced insolvency practitioner.
A Company Voluntary Arrangement is an agreement between a Limited Company and its Creditors detailing a debt repayment plan.
Administration seeks to pay off all the debt. Company Voluntary Arrangements usually write off a part of the debt and forms an arrangement to pay off the remaining debt.
Company Voluntary Arrangements can only be arranged by a licensed Insolvency Practitioner (IP) who acts in the capacity of an Administrator for a company facing insolvency and a mediator between the company and its Creditors.
A CVA becomes necessary when a Company cannot make debt repayments, and they’ve made attempts on their own volition to find a solution such as negotiating with Creditors without an IP or are faced with the threat of legal action and permanent closure.
Essentially, a Company engages with a CVA when it cannot work things out on its own.
Throughout the length of a Company Voluntary Arrangement, the Company would pay a monthly sum to the IP/Administrator who then distributes it to the Creditors.
All unpaid debt is written off.
No. The conditions of a Company Voluntary Arrangement are that a Company must have unsecured debt and a business that would be able to operate with success, if those debts were not there.
The Company need only pay back the debt itself. Interest is frozen and usually, a Company Voluntary Arrangement includes an agreement from Creditors to write off a part of the debt.
Yes, as long as repayments are made. If not, it could result in more serious action.
Although Company Voluntary Arrangements can navigate a business to safety, it does affect its credit rating, which affects the company’s ability to borrow money in the future.
A Company Voluntary Arrangement stops your Creditors from taking further and more aggressive forms of legal action to reclaim monies owed. During a Company Voluntary Arrangement, the company is protected from its Creditors.
No. For Limited Company’s only the Company is responsible for making Company Voluntary Arrangement and not the Director i.e. his/her personal wealth is protected unless any original debt was secured against their personal assets or if they are found guilty of something that would warrant a Directors disqualification.
Nobody needs to know except the parties involved. However, because the Company is Limited, a Company Voluntary Arrangement goes on the Companies House public record. This means anyone could find out if they wanted to.
The determining factor is the size of your business. A Company Voluntary Arrangement could cost up to £10,000.
The Insolvency Practitioner will organise a meeting with all Creditors of a Company to propose the Company Voluntary Arrangement.
How is the Company Voluntary Arrangement approved?
A Company Voluntary Arrangement is agreed after a two-stage vote:
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In the first vote, at least 75 per cent of Creditors by the value of the debt must approve the arrangement.
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In the second vote, at least 50 per cent of Creditors by the value of the debt must approve the arrangement must approve the arrangement. Creditors connected to the Company i.e. its Directors and employees do not vote in the second round, only external Creditors i.e. suppliers and banks.
The more a Creditor is owed money, the heavier the weighing their vote will carry at the meeting.
Yes, if the required votes are not met, the Company Voluntary Arrangement is automatically rejected.
There could be many reasons, such as:
- The Creditors think the Company will not be able to honour the Company Voluntary Arrangement.
- The Creditors think they can get a large portion of the debt or retrieve the debt quicker using another method.
The company’s latest financial statements, which reflects the financial health of the business will be used to determine how much it can afford to pay back.
Employees are Creditors if you have not paid them for the hours they have worked. If this is the case, your debt to them will be included as part of the Company Voluntary Arrangement.
Yes, absolutely. In fact, the Company needs to continue trading so that it can keep up with Company Voluntary Arrangement repayments and possibly improve its financial status with continued trade.
Typically five years, however, the length of the Company Voluntary Arrangement is dependent on how much money is owed and how much the company can commit to by the way of the Company Voluntary Arrangement.
Yes, the Company Voluntary Arrangement covers rent owed to a landlord.
The IP can propose an amended Company Voluntary Arrangement to Creditors, which may include lower repayments or a break from repayments.
If a Company still cannot keep up with Company Voluntary Arrangement repayments, another method is sought to retrieve the debt. This could mean closing the company down entirely or another type of arrangement. It all depends on the financial situation of the Company.