If your company is struggling financially, a company voluntary arrangement (CVA) could be the solution. This formal process is an extremely valuable company rescue tool, which allows your company to pay back some or all of its liabilities over a set period of time. Throughout the duration of a CVA, creditors are bound by the terms of the arrangement, giving your business valuable breathing space in which it can regroup and recover free of creditor pressure.
If you’re considering entering into such an arrangement for your own company, it’s important to understand exactly what the CVA process entails. We have outlined the key steps below.
Step 1: Professional CVA Advisors Are Brought In
The process starts with bringing in a licensed insolvency practitioner who will advise you on the best course of action throughout the CVA process. They will identify the causes of financial distress in the company and ensure that the CVA process is viable for helping the business to recover in a realistic timeframe.
Step 2: A Proposal Is Drafted
Once it has been deemed that the CVA process is suitable for the company’s situation, a comprehensive proposal will be drafted. The proposal will contain key details about the situation and how the proposed payment plan will rectify the situation. Past and projected cash flow statistics and a summary of the current financial position will be included to make things as transparent as possible for the company’s creditors.
Step 3: Creditor Negotiations
Once the proposal has been shared with the creditors, the next stage of the CVA process will begin. Creditors will be given the proposal after it has been reviewed and approved by the insolvency practitioner. This step should take place at a meeting between the company and the creditors, following which the creditors will have the opportunity to vote on the proposal.
Step 4: Creditor Approval
In order to be accepted, the proposal must have approval from 75% of the total value that the creditors represent. Remember, it’s not 75% of all creditors, each vote is weighted by the value that the creditor has in the business. Once creditors have approved the proposal, it is carried out irrespective of any shareholders’ approval.
Step 5: The CVA Is Carried Out
Once approved, the CVA process moves into full implementation, and the agreement becomes legally binding for all parties. Directors remain fully in control of the business but are required to ensure that the agreed payment plan is strictly adhered to. Provided that payments are made on time then the plan will continue until the agreed period is up. If not, then the company will likely enter into administration or liquidation proceedings.
If you’re considering entering into your own CVA process to manage your company’s financial difficulties, seeking expert advice is key. At Ballard Business Recovery, we have years of experience delivering clear, tailored advice to get companies back on track and can work with you to ensure the CVA process is conducted efficiently and effectively. Simply get in touch today to discuss your situation with one of our business rescue experts.
