Company Voluntary Arrangement
What is a CVA (Company Voluntary Arrangement)?
A company voluntary arrangement (“CVA”) is a formal business rescue option involving a legally binding agreement between an insolvent company and its creditors, to repay its historic debts out of its future profits, in part or full over a fixed period (the “proposal”). A CVA process differs from other insolvency processes in that should the creditors agree to the proposal, the company can continue to trade as normal under the control of its directors, with an Insolvency Practitioner appointed as Supervisor to ensure the CVA is implemented in accordance with its terms.
How does a CVA work?
After establishing with a Licensed Insolvency Practitioner that a CVA is the most appropriate rescue option, the Insolvency Practitioner will submit the proposal to creditors for review. The proposal will detail how the company plans to restructure and repay its debts out of future profits, in part or full. If 75% of unsecured creditors agree to the proposal, the proposal is accepted and the CVA is administered by the insolvency practitioner typically for a period of 3 – 5 years
When are CVA’s the most appropriate rescue option?
A Licensed Insolvency Practitioner will determine a CVA is the most appropriate and attractive rescue tool to companies that still have a viable business looking forward, but is burdened by its historic debts.
What are the advantages of a CVA process?
- Directors/Shareholders remain in control
- Quickly improve cash flow
- Protection from winding up petitions
- No break in trading
- Not publicly announced and therefore unlikely to cause reputational damage like the way an administration process would
- Can terminate supplier contracts with onerous terms
If you want to discuss whether a CVA is appropriate for your business, please get in touch today.
