At Ballard Business Recovery, one of the questions we get asked regularly is ‘what is a company voluntary arrangement (CVA)?’. That’s why we’ve put together the following short guide looking at what exactly a CVA is, how it’s carried out and its main advantages.
Definition of a CVA
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. A CVA is a practical business rescue tool for companies that have a realistic chance of returning to profitability through a restructuring programme. It allows directors to remain in control whilst trading out their financial issues.
Now that we’ve looked at the question of ‘what is a company voluntary arrangement’, you’re likely to be wondering how the process works.
The process for a CVA
Drafting of a CVA proposal: Directors will draft a CVA proposal to be presented to creditors for consideration. This is a detailed document setting out what creditors can expect to receive and when. The proposal looks in detail at cash flow forecasts to support the viability of ongoing contributions into the arrangement. At this stage, a licensed insolvency practitioner can assist directors with the drafting of the proposal in an advisory capacity.
Review of proposal by a Nominee: Once the proposal has been drafted, an insolvency practitioner is instructed as Nominee to review the document. Using the information provided, they will assess if the proposed plan has a realistic chance of success.
Proposal filed at court: Once the proposal has been successfully reviewed it is filed at court before being circulated to creditors for their consideration. There is a minimum period of 14 days in which creditors have to make their decision on whether or not to vote in favour of the proposal.
Decision of creditors to vote: A decision procedure is held in which a vote takes place to determine whether or not the CVA agreement will be accepted. At least 75% of creditors voting need to agree to the proposal in order for it to be accepted. The terms of the CVA are binding on all unsecured creditors, regardless of whether or not they voted in favour of the proposal.
CVA is implemented: Once the arrangement has been approved, repayments to creditors will be made over a specified period as set out in the proposal. The insolvency practitioner will act as supervisor throughout the duration of the arrangement to ensure that the company is adhering to the terms set out in the proposal.
So when discussing the question of ‘what is a company voluntary arrangement’, you can see that it’s a structured way for struggling companies to repay their debts, without closing down. The process allows directors to remain in control, however that’s not the only advantage of the process.
Advantages of a CVA
The CVA is not publicly advertised, it is a private arrangement between the company and its creditors.
All unsecured 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.
Is a CVA an option for my business?
In order for a CVA to be possible, it’s essential that the business has a realistic chance of being profitable, were it not for the burden of creditor pressure. That’s why, ,if your business is struggling financially it’s best to consult professional insolvency guidance as early as possible. This will give you a higher chance of recovering your business through a CVA or alternative ,business rescue plan.
Our team has helped a wide range of businesses benefit from a CVA process. To discuss how a CVA might benefit your company, don’t hesitate to ,get in touch.