Company Voluntary Arrangement
A Company Voluntary Arrangement is the correct full name for a CVA. A CVA is sometimes referred to as a Company Voluntary Agreement, Corporate Voluntary Arrangement or Creditors Voluntary Arrangement.
A Company Voluntary Arrangement (CVA) is a legally binding arrangement between a company and its creditors. A CVA will principally apply to creditors of a company that are not secured against company assets. These creditors are simply referred to as unsecured creditors.
The CVA agreement can allow for an element of one or both of a deferral of creditor payments and a reduction in the amount paid to creditors. Crucially, the level of repayment and the duration of repayment must be set by the company’s ability to pay rather than what might make a CVA look good.
In other words, a realistic cash flow forecast is an essential element of any CVA. If the repayment level is set too high then the CVA is likely to fail and the company may well end up in Liquidation.
Creditors must agree with a CVA, and the CVA proposal must show what the return to creditors would be should the company not be allowed to proceed with the CVA. If the CVA is not approved then the most likely outcome for the company is it that it will be placed into Creditors Voluntary Liquidation.
Therefore a comparison of the return to creditors in a CVA compared to a Creditors Voluntary Liquidation must be included in the proposal pack that is sent to creditors in order that they can consider the full facts of the CVA proposal.
- Enables the company to continue in business with a view to improving the position of the creditors.
- Stops court action and winding up procedures.
- Eases cash flow pressures.
- Directors are allowed to remain in place.
- Greater flexibility is allowed to ensure that the return to creditors is maximised
If a company has a viable future, but current cash flow problems have resulted in mounting pressure, a CVA may be a good solution.
Company Voluntary Agreement
A Company Voluntary Agreement is sometimes incorrectly referred to a Company Voluntary Agreement.
Corporate Voluntary Arrangement
A Corporate Voluntary Arrangement is sometimes incorrectly referred to as a Company Voluntary Arrangement
Voluntary Arrangement or Voluntary Agreement
A Voluntary Arrangement or Voluntary Agreement is a term interchangeable used for a Company Voluntary Arrangement or Individual Voluntary Arrangement, both of which are Voluntary Arrangements with creditors for companies and individuals respectively.
These Company Voluntary Arrangement FAQ’s are used with the approval of Insolvency.com:
- What is the financial structure of a CVA?
- Are my current creditors frozen during a CVA?
- How long do I have to repay my creditors in a CVA?
- What if I can’t pay my creditors back in full from the CVA?
- How is a CVA approved?
- Who controls the company during the CVA?
- What are the costs of a CVA?
- How long will it take to get a CVA approved?
- What happens to my secured creditors in a CVA?
- Can the Company be Protected Prior to the Creditors Meeting?
What is the financial structure of a CVA?
Typically, a monthly contribution is made into the CVA, which is distributed to creditors
on a regular cycle.
Are my current creditors frozen?
Yes. Once the CVA is in place no enforcement action can be taken by pre-CVA creditors.
How long do I have to repay my creditors?
Every CVA is different and a sensible time frame should be set.
What if I can’t repay my creditors back in full?
A pence in the pound offer can be made. Remember this will ultimately need to be supported by a business forecast.
How is a CVA approved?
75% of unsecured creditors by value must approve a CVA. Remember this is 75% voting on the day. 50% of non-associated creditors by value must also vote in support.
Who controls the company during a CVA?
The existing Directors and management will control the company.
What are the costs?
A Nominees fee will be charged, typically £2,000 – £3,000 depending on the business size to establish the CVA.
How long will it take to get a CVA approved a CVA?
Typically, 28 days from the outset.
What happens to my secured creditors in a CVA?
- Secured creditors do not vote in a CVA
- They will need to be comfortable with the CVA and will often run, as before the CVA, during the CVA
- Remember secured lenders prefer a solution not a problem
Can the company be protected prior to the creditors meeting?
Yes. If the circumstances require an application for Court protection prior to the Creditors meeting can be made. This protection will allow time for all creditors to consider the Company Voluntary Arrangement without fear that any one creditor may seek to upset the process.