Company Voluntary Arrangement (CVA)

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Company Voluntary Arrangement (CVA)

If your company is struggling to pay its creditors (but you still have a viable business once financial pressures are reduced), a CVA might be the best solution for you.

What is a company voluntary arrangement?

A company voluntary arrangement (CVA) is a tool for business rescue like no other insolvency procedure; it can give a viable business the chance of recovery.

A CVA is a formal procedure and is a legally binding agreement between your business and your creditors (the people you owe money to). It allows you to pay towards your debts for an agreed period of time, and once completed, all your remaining company debts will be written off.

It can also deliver a better outcome than administration or liquidation, as it gives you a chance to recover the business and address any issues around management and operational systems that are not working.

Problem

If your company is struggling to pay its creditors, but would still be viable if financial pressures were reduced, a CVA might be the best option for you.

A CVA can only be proposed if a company is insolvent or contingently insolvent. In order to enter a CVA, your business must be able to return to profitability and have a viable future. If you are prepared to fight for your business’s survival, a CVA could be the best option.

However, remember a CVA is not a ‘fix’ for your company. Rather, it is a very powerful framework that gives you time to change and protect your distressed, yet viable company.

In doing this, the aim of a CVA is to maximise creditors’ interests, preserve your company, save jobs, return value to your creditors and provide a realistic prospect of a return for your shareholders.

Solution

The first step for any business thinking of a CVA is to appoint an insolvency practitioner. Appointing Middlebrooks as your insolvency practitioner (IP) means you will receive expert advice – and we will guide you every step of the way. We aim to make the process as painless as possible and will deal with creditors on your behalf – so you don’t need to.

We will draw up CVA proposal and send it to your creditors for consideration. After 14 days, your creditors will be asked to vote and at least 75% must agree.

If successful, we will implement the proposal throughout the CVA period. The proposal will outline all debts owed, what percentage creditors will receive and how long the CVA will last.

We will arrange a formal meeting of creditors and shareholders, so we can iron out any objections and find solutions. Once accepted by creditors, the CVA will begin.

As your nominated IP, we will then become supervisor of the CVA. This means it’s our role to collect contributions, make distributions to creditors, report annually to creditors and manage any changes or breaches of the CVA.

A realistic CVA contribution will made in one of the following ways:

fixed CVA contributions – a fixed monthly amount over a period, calculated from cash flow projections
seasonal or trend based CVA contributions – variable amounts are paid defined by projected peaks and troughs of the business calendar
the realisation of company assets or introduction of third party funds into the arrangement

During the proposal process, the insolvency practitioner can go back to the creditors within the period of the arrangement to renegotiate with them. This is referred to as a variation.

It will also become public knowledge and be registered on Companies House. Your business will pay towards its debts for an agreed period of time, and once this time period is completed, all the remaining debts will be written off.

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Frequently asked questions

How much debt can be written off with a CVA?

all or a percentage of a company debts can be paid back, depending on affordability, making it beneficial to the business and creditors
a CVA can allow the core business to trade on under the control of its directors allowing the company to continue to generate income to repay some of its debts
a CVA can provide the time needed for a business to reorganise and restructure itselfa ‘statutory moratorium period’ can be used to provide a breathing space from creditor action (such as a winding up petition) while an initial CVA proposal is prepared
a CVA can be less costly than other insolvency procedures but this does relate to how complex the situation is
secured creditors generally remain outside of the CVA and therefore are likely to be supportive
a CVA may enable a company to avoid the negativity of other insolvency procedures (a CVA is not normally advertised but it is registered at Companies House and employees must be informed)

Who is in charge of the company when a CVA is issued?

With a CVA, the directors and shareholders remain in charge of the company. In order for the CVA to be effective, your directors must be 100% committed to rescuing the company. As your insolvency practitioner, we will also be there to ensure the company complies with the CVA throughout its duration.

What’s the cost of a CVA?

There is no set cost for a CVA. It depends entirely on how many creditors there are and how open they are to negotiation.

Is your struggling company eligible to propose a CVA?

To successfully propose and comply with a CVA, your company needs to have all of the following characteristics:
Has at some point, demonstrated a viable, profitable business model. If your model can’t show profitability, then a CVA will not be plausible.

When you consider submitting a CVA, your company is required to be insolvent. To test is simple. Your company shows as insolvent either using balance sheet test or Cash flow.

A viable road to recovery. Creditors want to see future positive cash flow while demonstrating recovery financially and even more robust management.

What are the disadvantages of entering into a CVA

Does not bind secured lenders;
affect the company’s credit rating;
A creditor owed 25%, or more has the opportunity to steer vote and the final terms of CVA;
requires shareholders to agree;
The company proposing CVA then needs to make profits to fund old debt in CVA proposal.

Still got questions?

If you’re still feeling confused, feel free to drop us an email or give us a call.

alan smith

2021-04-20

Let’s face it. Anyone going through tough times financially doesn’t need an insolvency practitioner shaking their head and wagging their finger in a “naughty naughty boy” manner. And that’s how much of the industry operates but thankfully NOT Middlebrooks. I know that the team at Middlebrooks, led by Claire Middlebrook, genuinely want to help people move on to the next chapter in their lives. They have a heart…and that’s exactly what you want from an IP when times are tough.

Ronnie Murison

2021-04-20

Always a good experience working with the Middlesbrooks’ team.

customer

2021-03-29

Darren Canham

2021-03-03

Middlebrooks are first class, the support and service is exemplary. Thank you so much.

Maggie

2020-09-07

I was supported to file for bankruptcy at a very difficult time in my life. Lauren was professional and informative giving guidance where required. Thank you Lauren x

Vapour fresh Ltd

2020-04-23

Would absolutely, without hesitation, highly recommend this company, . From the initial call to present day, they have been truly amazing to work with. While going through an extremely difficult period in my life, I needed to know that I was going to receive the right level of support to get me through this vital stage of my journey and Middlebrooks provided exactly that. Their vast knowledge and experience (which has been evident throughout the process) enabled me to proceed with confidence to the required conclusion. If you are reading this, you may be seeking the right advice and help too, look no further than this company. They won’t just talk you through the process, they will walk you through the process and they WILL get the job done, efficiently and professionally.

Emma

2020-03-30

Middlebrooks have been nothing short of fantastic helping me get my IVA approved. From start to finish they made me feel at ease and kept me up to date with everything that was happening. I cant thank or recommend them enough for everything they have done for me and my family.

Cheryl Barnes

2020-02-12

Middlebrooks have been fantastic and a great help. Couldn’t fault them at all and would highly recommend.

David Price

2020-02-10

Middlebrooks have been fantastic from start to finish.They kept me well informed & my administrator brooke has been brilliant.Pain & stress free now all thanks to these guys.Thankyou middlebrooks for been there for me at a difficult time would definitely recommend👍👍😊😊

customer Mrs caron malkin

2019-11-20

Thank you to Middlebrooks Business Recovery & Advice Ltd for all your help and advice in going forward and having my IVA approved, everything your team have done was so professionaly handled. Once again thank you.

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