A CVA is a binding contract between a company and its creditors to pay back some or all of its liabilities over a specified period of time.
The process itself requires the directors to draft a CVA proposal to be presented to creditors for their consideration. This is a very detailed document that will set out what contributions the company will make into the CVA, cash flow forecasts to support the feasibility of the ongoing contributions, and ultimately a time line as to what creditors can expect to receive and when. We would act in an advisory capacity to assist the directors in drafting the proposal.
Once the proposal document has been drafted, we would then be instructed as Nominee. A Nominee’s duty is to review the CVA proposal, put forward by the director, and give an opinion as to its likelihood of success based on the information provided. This is then filed in Court before circulating to creditors for their consideration.
At least 75% of the creditors voting in respect of the proposal must vote in favour in order for it to be approved. The terms of the CVA are binding on all unsecured creditors regardless of whether they voted in favour or not.
Once the CVA is approved, we act as Supervisor throughout the duration of the CVA to ensure that the company is adhering to the terms set out within the proposal.
Key advantages of a CVA
The directors regain control of the company throughout the process.
The CVA is not publicly advertised, it is a private arrangement between the company and its creditors.
All creditors are bound by the CVA, thus alleviating immediate creditor pressure.
There is scope to vary the terms of the CVA process at a later date to account for changes within the business.
Liabilities can be paid over a long period of time, typically between 3-5 years.
Full debt forgiveness upon the successful implementation of the CVA.
Our team have helped many businesses benefit from a CVA procedure, giving them the breathing space required to become successful. If you believe you have a good business that would flourish but for current creditor pressure, please contact us at an early stage to explore the possibility of a CVA process. Watch a success story below.
FAQ’s relating to the CVA process
How quickly can a company enter CVA?
The timing of seeking approval of a CVA is wholly dependent upon the provision of quality information in order for us to assist in the preparation of the proposal and seeking creditor approval. Typically, we would aim for a CVA proposal to be approved within 3-4 weeks following our instruction.
Do creditors have to be paid in full?
Not necessarily. The directors can propose whatever they feel is appropriate to creditors. However, in our experience, it is always more difficult to obtain approval to a CVA where anything less than a 100p in the £ return is being offered. This is particularly the case when there is a liability due to H M Revenue & Customs.
What happens if the terms of the CVA are breached?
If the terms of the CVA are breached, for example the company fails to pay the agreed contributions or fails to file tax returns on time; the proposal will set out what action the Supervisor is to take in the event of an unremedied breach. If no variation is achievable, steps are taken to petition for the winding up of the company (in which case the company will enter compulsory liquidation), unless the directors and shareholders voluntarily take steps to place the company into Creditors’ Voluntary Liquidation. See our company closure page for more details.