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.