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COMPANY VOLUNTARY ARRANGEMENT (CVA)

If you find yourself wishing to undergo a company voluntary arrangement, our experienced team is on hand to help guide you through the process and advise you on the best solution available.

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What is a CVA in Business?

A company voluntary arrangement (CVA) is the formal procedure of a firm reaching a legally binding agreement with its creditors regarding how its debts can be repaid — provided the creditors are willing to make some concessions over timing. The appeal of a CVA is that it can produce better results for both parties when compared to administration or liquidation.

CVAs can be an excellent method of getting a struggling business debt-free within five years. This is because any outstanding debt once the arrangement is completed has to be written off.

To qualify, a company director must create a proposal which includes a clear business plan (including a forecast of projected cash flow), details regarding how much creditors should expect to receive and when, and whether the payment will be in full or partial.

For an agreement to be in place, a clear majority is needed of both creditors and shareholders. For creditors, a majority of three-quarters or more (in terms of value) is required for approval, and for shareholders, a majority of over half in number is required.

If the proposal is approved and agreed upon by both creditors and shareholders, the debtor will be bound to make the necessary payments to the creditor. This will be supervised by an insolvency practitioner who will act to make sure all payments highlighted in the agreement are received on time and in full.

How Insolvency Practitioners Help with Company Voluntary Arrangements

An insolvency practitioner will play a pivotal role in the process of ridding a company of debt and repaying the creditor during the CVA process. They will take on the roles of a supervisor, and a nominee who is responsible for creating the key proposals that will be submitted to shareholders and creditors.

Using the services of an experienced, specialist insolvency practitioner will grant you all the expertise and skill needed to guide a business through a company voluntary agreement — and offer key advice and suggestions throughout the procedure. The aim of this is to ensure a successful resolution for all parties involved.

The Role of a Specialist Insolvency Practitioner in the CVA Procedure

The role of a specialist insolvency practitioner in the CVA procedure includes a series of important responsibilities that, if not done, can jeopardise your firm’s chances of ridding itself of debt. These include:

  • Assessing the company’s solvency, and weighing up available options
  • Acting as an official nominee on behalf of the business
  • Taking the lead drafting and submitting all relevant paperwork for board members and creditors
  • Working closely with creditors to find an agreement on a repayment plan that suits both parties
  • Implementing the CVA, and managing the process from within
  • Ensuring that all payments are made on time and in full

Download our FREE Guide to Liquidation

While a partnership voluntary arrangement does offer a lifeline for struggling partnerships, it’s by no means guaranteed to succeed in every case. If the partnership is unable to meet the terms of repayment, or it becomes clear that recovery is no longer viable, the next steps may be to consider closure, including liquidation options. 

Liquidation involves winding down the business and distributing assets to satisfy creditors. It’s a complex process, with various legal and financial implications — understanding this is key. For a comprehensive guide on what liquidation entails, download our dedicated Liquidation guide to learn more.

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The CVA Process Explained

The CVA process contains several important parts that must be carried out to the letter. From assessing your options and submitting a proposal, to making your payments and carrying out regular reviews, there is certainly a lot to remember. Thankfully, a licensed insolvency practitioner will be perfectly placed to help.

Assessment

The first step of the company voluntary arrangement process should always be to thoroughly assess all options open to you and, with the assistance of an insolvency practitioner, establish whether a CVA is the best option available to your company.

It is important to be 100% clear on which repayment option is the right one for your specific circumstances. You do not want to be in the process of repayment and realise that the agreement you have in place isn’t suitable.

Proposal

Once a CVA is agreed upon and gets the go-ahead, it is essential at this stage that you have appointed an insolvency practitioner to oversee the drafting of an official proposal to creditors.

Without specialist assistance, it is possible that your proposal could be rejected and you could be forced down a less beneficial route, having a negative effect on the future of your business.

The CVA draft proposal will then be considered by the board of directors. At this stage any amendments to the agreement should be made before proceeding.

Submission

It is at this stage that the CVA is filed with the court and assigned a legal originating number. Once this has taken place, the signed copies are sent out to all creditors for approval. The CVA must be submitted 14 days prior to the creditors’ meeting.

Consideration

In some cases, if the insolvency practitioner sees fit, a meeting of shareholders and creditors can be held at any time to inform both parties of the details of the proposal and seek their approval to continue as planned

For the proposal to be approved, the shareholders must agree by a majority vote, and creditors must vote in favour by more than a 75% majority. Even if the required number of members are not in agreement, a CVA can still proceed provided it has secured the backing of creditors.

After the conclusion of the meeting, if approved, the CVA will be implemented. All creditors are then bound by the terms of the agreement, and as a result will be unable to take legal action against the company.

Payment

Once an agreement is in place, the company is then expected to make the agreed payments into a trust account operated by the insolvency practitioner on behalf of the creditors.

As long as the required payments are kept up, the business will be able to continue trading with the fear of liquidation significantly less prominent. Any legal action looming over the company is also halted once a CVA is approved, and no further action can be taken until matters are resolved or the CVA is defaulted on.

Review

Once the agreement is in place and repayment has begun, it is important to routinely review the process to ensure that the business is still capable of adhering to the deal they had agreed.

If something should happen to alter your situation that means you are no longer capable of satisfying the terms of your CVA (such as some form of business interruption), it is important that you notify the insolvency practitioner as soon as possible — as they will be able to recommend a new course of action to secure the arrangement and future of the company.

How Inquesta Helps with the Company Voluntary Arrangement Process

The licensed insolvency practitioners at Inquesta are experts when it comes to company voluntary arrangements. We possess decades of combined experience in helping businesses work their way out of serious financial difficulties.

Our team will endeavour to help you through each and every stage of your CVA with no complications, while ensuring that the agreed terms are all stringently adhered to throughout.

Everything we do is built around the core belief that the needs of the client must always come first. It is this client-centric approach that has helped us build a strong reputation for quality.

Inquesta has built a specialist team of insolvency practitioners who are experts across various fields within the industry. We are a trusted name to help people and businesses with CVAs, winding up petitions, statutory demands, and more.

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Our Specialist Team

Meet our specialist team of insolvency practitioners, ready to assist you with the CVA process from start to finish.

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Steven Wiseglass

Director of Insolvency

A co-founder of Inquesta, Steven is a licensed Insolvency Practitioner with over a decade of experience in the field. He is a member of the Insolvency Practitioners Association, Association of Business Recovery Professionals (R3), and his insolvency licence is issued by the Insolvency Practitioners Association. In addition, he sits on the R3 committee of the North West Regional Committee.

Steven specialises in advising directors of small to medium-sized businesses, and has a wealth of expertise in providing the most appropriate advice whatever the firm’s circumstances may be. He has also been instrumental in helping company directors save their business and rebuild them into successful enterprises.

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FAQs

If a CVA is rejected, a creditor will likely begin the process of serving a winding up petition that forces the debtor company into liquidation. However, it should be noted that there are other, more preferred options that can be proposed as an alternative. For more information contact the team at Inquesta today.

The goal of a CVA is for a business to have the opportunity to continue trading as normal. As a result, employees will generally not be affected and will be able to carry on with their duties. However, it is possible that a CVA could result in a form of business restructure, which could affect employees and lead to layoffs.

The amount of time that a CVA will generally take is unique to each business and dependent on the amount of debt accrued, and the company’s ability to repay it. Typically a CVA will last sometime between one and five years, however not every case is the same.

A CVA is a separate method of eliminating debt to administration. While there may be some similarities (the appointment of a licensed insolvency practitioner, the intention to rid the company of debt, protection from legal action etc.) the processes are distinct throughout. In many cases a CVA is seen as a preferred method of debt repayment when compared to administration.

Some key differences with CVAs when compared to administration are as follows:

  • A CVA does not automatically contain a statutory moratorium against further legal action
  • Company directors will retain control over the operation
  • A CVA is generally a much cheaper option on the whole — with significantly less admin/legal fees throughout
  • Unlike with administration, the process of CVA does not allow for a top to bottom investigation into the business to find the root of the financial issue, meaning that it is possible the issue could not be solved in the process.

It is important to make an assessment on which method of debt repayment suits you and your specific circumstance before you commit to one technique.

Also in Company Insolvency & Recovery

Administration

Business Recovery

Liquidation

Receivership

Solvent Winding Up

Statutory Demand

Winding Up Petition

Bounce Back Loans

Court Bailiff Action

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