Company Voluntary Arrangements
A Company Voluntary Arrangement (“CVA”) allows a company to freeze its creditors at a point in time and continue to trade.
The decision to propose a CVA to creditors is one taken by the directors of the company. Through a formal proposal, generally drawn up on their behalf by a licensed Insolvency Practitioner, they propose a scheme to creditors to maximise the return to them whilst allowing the company to continue to trade.
The proposal, which is supported by the Insolvency Practitioner, is lodged at Court and then circulated to all creditors. Creditors then vote on whether to support the proposal, which they may also seek to modify, or to reject it.
So long as 75% in value of those who vote support the proposal then it is accepted and binding on all the company’s creditors. This means that all creditors are formally bound into the CVA without necessarily achieving 100% specific agreement. Even creditors who vote against must abide by the terms of the CVA if sufficient other creditors vote in favour.
A typical CVA will last for between three and five years and will provide for the company to make voluntary contributions from income on a monthly basis. These monies will be paid to the appointed Insolvency Practitioner (‘the Supervisor’) who will agree the claims of creditors and pay dividends to them as and when it is economic for them to do so.
Creditors do not need to receive 100p in £ for a CVA to be accepted. At the end of the CVA period, if it is successfully completed, creditors are obliged to write off any part of the debt which has not been repaid. In effect, this repairs the Company’s balance sheet and allows it to continue.
The order of priority for payment of dividends to creditors is governed by statute. Please see the note on Creditors’ Voluntary Liquidations for more details.
CVA’s are attractive because they are not advertised, they are agreements between the company and its creditors only and they allow the directors to remain in control of the business. The role of the insolvency practitioner is to ensure that the CVA is adhered to by the company. They will not generally become involved in running the business.
This note is meant as a brief overview of CVAs. It is not a detailed review and further detailed advice should be taken before coming to any decision. No responsibility can be accepted by Campbell Crossley and Davis, its partners or employees for any loss occasioned by any person or persons acting or refraining from action as a result of material contained in this note