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.
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.
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:
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.
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.
There is no set cost for a CVA. It depends entirely on how many creditors there are and how open they are to negotiation.
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.
If you’re still feeling confused, feel free to drop us an email or give us a call.