Company Voluntary Arrangement (CVA)
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What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement (CVA) is an insolvency process in the UK. It is a legally binding agreement with creditors where the company repays a portion of debt over a period. This requires a minimum of 75% of creditors to support from creditors to support the proposal.
The purpose of a Company Voluntary Arrangement is to allow an insolvent company, which has potential to be rescued, to negotiate with unsecured creditors.
How does a Company Voluntary Arrangement come together?
A Company Voluntary Arrangements (CVA) is used in cases where the company is currently in trouble, but appears to be viable and could well become profitable again.
In layman’s terms, all the company debt is moved into one manageable monthly payment, so that the company can continue trading without the burden of winding-up petitions or liquidations being threatened. This allows you to move forward without the pressure.
How does a CVA effect creditors?
The Company Voluntary Arrangement binds all of the unsecured creditors of a company together once it is approved. This means that a CVA collects together:
▪️ Creditors who did not vote in favour of the CVA
▪️ Creditors who did not vote despite receiving notice of the CVA
▪️ Creditors who would have been entitled but did not get notice of the CVA proposal
These terms will usually be drafted in to prevent the creditor from taking over any debt that falls within the remit of the CVA.
Can a creditor manage a CVA?
A creditor who was entitled to be notified of the CVA proposal, and feels to have been unfairly treated by the CVA, can apply to court for an order revoking the CVA.
A Company Voluntary Arrangement can also be challenged on the idea that there was a material irregularity in the conduct of the procedure that was put on the table in the CVA proposal.
What are the benefits of a Company Voluntary Arrangement?
▪️ The CVA is not public information: advertisement in the London Gazette is not required
▪️ Once your Company Voluntary Arrangement is in place your creditors can no longer add further interest or charges to any of your accounts covered by the agreement
▪️ Can stop a winding up petition from becoming successful
▪️ Cash flow is inevitably improved with reduced payments
▪️ The value of assets will be maximised to provide a substantial return to creditors and, while not all amounts will be able to be returned to creditors, the majority of the debt should be dealt with.
Am I eligible for a Company Voluntary Arrangement?
You are eligible for a Company Voluntary Arrangement if:
▪️ Your business has cash flow issues
▪️ You have debts of £4,000 or greater
▪️ You are able to make some form of monthly contribution to your debts
How long does a CVA last?
It takes between four to ten weeks to get put into the solution. Finishing the CVA will take between two and five years, however, sometimes that can take longer than five years.
Can a business carry on trading during a CVA?
You should continue to trade, as long as you are trading in the best interests of your creditors. All efforts should be done to pay back the money that you owe creditors.
Can I borrow money if I'm in a Company Voluntary Arrangement?
You will still be eligible for refinancing options but it is probably going to be more difficult as lenders will see you as a riskier operation. Nonetheless, some lenders will be prepared to offer you money for the right terms.
What is the difference between a CVL and a CVA?
The key difference between a Creditors Voluntary Liquidation CVL and a Company Voluntary Arrangement (CVA) is that a company is liquidated and no longer trades in a CVL solution. A company will continue to trade within a CVA.
A CVA is only possible if your company looks like being profitable in the future. If it does not, a CVL might be the better route to go down.
What is the difference between a CVA and an MVL?
A Company Voluntary Arrangement is designed to prioritise a profitable future for a business in financial difficulty. A business will still be allowed to trade in a CVA.
A Members Voluntary Liquidation (MVL) is a tax-efficient distribution of a business’ assets to its members. This is usually when trading has ceased, or if the company becomes invalid in some capacity.
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Company Voluntary Arrangement FAQs
You are not legally forced to inform everyday customers about the situation of your business. Nonetheless, large contractors and regular customers should probably be made aware if your business wishes to move into a CVA. They may prefer to hear the news from you as opposed to a secondary source.
All creditors will be informed when a CVA comes into force. Therefore, they should call off any bailiffs that may have been asked to chase you down as, legally, they would not be able to enact force onto debtors.
Yes, you can put HMRC debts in a CVA. If your debts are solely with HMRC then you might want to explore a Time to Pay Arrangement.
Companies in a CVA are allowed to continue trading so employees will remain by default. However, as the business continues to fulfil its obligations on a trading front, it will also have to try and balance the books. That could mean trimming down its workforce or downsizing in some other way, potentially affecting the future of employees.
A CVA will not directly make a director personally liable for the company’s debts. However, if they have taken out personal guarantees to secure funding for the business then those personal guarantees will remain. A CVA will not do anything about that.
A director in this situation could be held liable if the CVA fails.