What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement (CVA) is a legal process that allows a company that is struggling financially to agree a repayment plan with its creditors (people or companies it owes money to). A CVA can help a company avoid liquidation (closing down) and continue trading whilst repaying its debts over a specified period of time.
The main objective of a CVA is to provide the company with breathing space and a realistic chance of recovery. Unlike other insolvency procedures, such as liquidation or administration, a CVA aims to rescue the company rather than close it. This is beneficial for both the company and its creditors as it offers an opportunity for the business to turn around its fortunes and for creditors to receive at least some payment for the money owed to them.
The process of initiating a CVA starts with the company appointing an Insolvency Practitioner (IP) who will act as a nominee. The nominee’s role is to assess the company’s financial situation, its ability to repay debts, and propose terms for the CVA. The nominee will prepare a detailed proposal outlining how much and when the creditors can expect to be repaid. This proposal is then sent to the company’s creditors for their consideration and approval.
For a CVA to be approved, it must obtain the support of at least 75% (by value) of the creditors who vote on the proposal.
Once approved, the CVA becomes a legally binding agreement between the company and its creditors. The company must adhere to the agreed repayment plan and make regular payments to the IP. The IP will then distribute funds to the creditors according to the terms agreed within the CVA. The company must also adhere to any other conditions outlined in the CVA.
Whilst a CVA allows a company to continue trading and work through its current problems, there are some potential drawbacks to consider. Firstly, the company may face restrictions on its ability to take on further debt or dispose of assets without the consent of the IP or the creditors. Additionally, a CVA may impact the company’s reputation, as it becomes a matter of public record and might be viewed as a sign of financial difficulties.
In conclusion, a Company Voluntary Arrangement can be a vital lifeline for a financially distressed company as it offers a structured and legally binding repayment plan that allows the company to avoid liquidation and work towards financial recovery. While there are some challenges associated with a CVA, its benefits, such as preserving jobs and maintaining business relationships, can make it a valuable tool for companies facing financial difficulties.
If you’d like to discuss whether a CVA might be right for your company, please get in touch. We’ll be happy to discuss it with you in complete confidence and we won’t charge you anything for our initial advice or put you under any obligation to follow a certain path. Contact me……
