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Company Voluntary Arrangement (CVA)

Company Voluntary Arrangement

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 Arrangement (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 Company Voluntary Arrangement affect 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.

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Can a creditor manage a Company Voluntary Arrangement?

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 can make some form of monthly contribution to your debts.

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How long does a CVA last?

It takes between four to ten weeks to get put into a Company Voluntary Arrangement. Finishing the CVA should take between two and five years. However, sometimes it can take longer than five years.

We’ve put together an article about the full CVA Process here.

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's the difference between a CVA and CVL?

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's the difference between a CVA and 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.

What next?

If you feel a Company Voluntary Arrangement is right for your business then give our expert team a call on 0800 088 2142 and we will advise you on the best options for you and your company.

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    Will my customers find out if I have a CVA?

    Will bailiffs be stopped by a CVA?

    Can HMRC debts be included in a CVA?

    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.

    Transparency and proactive communication with your lender are key. If necessary, seeking legal or financial advice to explore your options and mitigate any potential consequences is advisable.

    What will happen to employees in a CVA?

    Does a CVA make me personally liable for debt?

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