A CVA is a deal between the company and its creditors; unsecured, trade and tax, to repay them from future profits or a deal may be written to sell assets and pay back creditors from the proceeds.

The deal is based on preserving the company, rebuilding sales and profits and paying something back over a period of time to be agreed. Directors remain in control, personal guarantees don’t get called in (usually) and it gives your business a fighting chance to survive.

We start every CVA deal with a blank sheet of paper and a clear mind. Every case is different but there are some crucial points to consider before embarking down this path.

This guide is not just theory either! KSA knows how to restructure businesses based upon the experience gained from doing hands-on turnaround work for more than 30 years! Here’s what one delighted clients said…..

“KSA is the leading company voluntary arrangement expert in the UK, I have absolutely no hesitation in recommending you and you can give my telephone number to any potential clients!”

A chartered accountant, ex 3i manager and now entrepreneur; Mr Stephen L, who used us to restructure one of his companies.

Saving businesses is how we earn our living!

Vital Components of a successful CVA are

• A viable business that can return to profitability.
  
  
• A commercially structured deal - do not pay too much too soon.
  
  
• Introduction of appropriate levels of working capital in addition to the restructuring of debt.
  
  
• The management accepts that there has to be change in the management and company.
  
  
• Determination and hard work is essential, plus a bit of luck helps.
  
  
• Directors need to use expert CVA advisors to build the deal. Always ask advisors claiming to do turnaround how many CVA’s they’ve done!!
  
  
• Cautious forecasts don’t expect life in CVA to be easy!

So if your company can be viable in future but pressure is mounting this could be a superb solution.

Remember the directors should aim to maximise creditors’ interests - by continuing to trade you will do that in a CVA.

After the directors have considered the long-term viability of the company it is essential to take appropriate advice from experienced turnaround advisors. We believe that it is vital to have commercially pragmatic and creative specialists involved from as early a stage as possible.

If a company has a viable future, the directors and management accept the need for change, are prepared to fight for its survival and the appropriate funding can be found, then a CVA is a very powerful tool. BUT be prepared - it is a tough fight and it is harder than liquidating the business. By proposing a CVA you are demonstrating that you are trying to maximise creditors’ interests so it can often be viewed positively.

If after that the CVA does work then the company will be profitable and valuable for the shareholders.

Who can propose a CVA?

A CVA may be proposed by the directors of the company. When the company is either in liquidation or administration, the liquidator or administrator can propose a CVA.

A CVA can only be proposed if a company is insolvent or contingently insolvent.

How long does it take?

Here is a time-bar summary of the CVA process:

See CVA’s Flowchart for a graphical illustration: Click Here

1. The directors appoint advisors, such as turnaround practitioners or an insolvency practitioner (IP) to assist in the construction of the proposal. During this "hiatus" period the company should not materially increase or decrease debts to any creditor, suppliers should be paid for supplies made (not always easy!) and activity of the company continues.
   
   
2. A review of the company, its people, markets and systems should be undertaken. This is an important part of the process. Typically the CVA will include detailed 3-5 year financial forecasts to assist the creditors to make their decision to support the deal or not.
   
   
3. Once the draft proposal is ready the directors will typically review and refine it and agree that the proposal is appropriate, achievable and maximises creditors’ interests. If the directors do not believe that it is sensibly structured, or that the process has highlighted weakness in the business then it is advisable to close the business. For example see our guide to creditors voluntary liquidation.
   
   
4. Once the final CVA drafting has been completed the directors should then discuss the position with the company's’ secured creditors. Experience tells us that the ability to deliver a quality draft proposal at this stage is preferable to verbal assurances that a CVA will be written and the bank told what the contents are when it’s ready!
   
   We find that the banks are very keen to get involved and assist where they see a viable company. Often they will want to see how the company will repay the bank’s debts. This should be included in outline in the document - of course the bank may not agree with the suggested secured debt structure but will usually negotiate with the directors and their advisors.
   
   
5. During the CVA production or hiatus period, current assets such as WIP and debtors are collected, turned into cash and liquidity should improve. This should be used to fund the difficult period between appointment of CVA advisors and filing the document at court.
   
   
6. The CVA proposal is then filed at court only to ensure that the proposal is ratified and carries a legal originating number. Then it is printed and the proposal is distributed to all creditors. The court does not have an active part to play in this process but the CVA proposal sent to creditors must be a true signed copy of the document filed at court.

After the Proposal is completed:

1. The proposal must then be sent to all creditors who then consider it for the minimum notice period as above before the creditors meeting can be held. This is usually held at an independent venue (theoretically at the convenience of creditors).
   
   We find that the HMRC team, called the Combined Voluntary Arrangement Service prefers to have up to 3 weeks to consider the proposals so we always allow more than the statutory 14 day minimum period for consideration.
   
   
2. The meeting will be chaired by the advisor or an Insolvency practitioner (IP). Creditors are often represented by technical professionals from other insolvency firms. The aim of the meeting is to allow the creditors to question the director’s proposals; however it is not a place for settling disputes.
   
   
3. At the meeting the creditors vote on the proposal and the proposal will be approved if a majority vote of 75% by value of the total value of creditors at the meeting (whether in person or by proxy) vote in favour. A second vote excluding connected creditors is taken and provided that not more than 50% of creditors vote against the proposal it is approved.
   
   For an example of votes at a creditors meeting click here
   
   
4. In our experience the voting at meetings is an area that concerns many directors. Well, provided the work has been done thoroughly before the CVA is filed at court then the worry should be reduced. In our CVA’s the Combined Voluntary Arrangement Service, (CVAS) which represents the HM Revenue and Customs, will always support viable proposals that are well built and show proper care and attention to detail.
   
   Given that the CVAS often represents the largest votes, then we ensure that they are comfortable with the CVA process very early in the cycle of events.
   
   Proper communication with creditors is a vital part of KSA’s strategy for helping you build a CVA deal.
   
   
5. The Chairman controls the ability to vote and provided creditors have been asked to consider a sensibly structured deal, almost all proposals are accepted by creditors. Also the creditors may wish to modify the proposal - once again the modifications need to be approved by the majority votes above.
   
   This often done by the HM Revenue and Customs agencies to ensure future debts are paid on time and future filing of tax returns is done correctly. Occasionally other creditors may ask for a modification to the proposal.
   
   
6. At the same time as the creditors meeting, the members (shareholders) meeting is held. Members decide whether to accept the proposal as made or modified and a vote of 50% in favour is required.
   
   
7. If both meetings approve the proposal the meetings close. The chairman must then issue a chairman’s report, within 4 days, to all creditors and the court, stating what happened, who voted and how they voted.
   
   
8. Once approved all notified and included creditors are legally bound for the debt "frozen" in the proposal. No further legal action (except by leave of court) can be taken against the debtor company and the creditors will receive dividends from the supervisor as described in the proposal.
   
   
9. After the approval the company must make the agreed contributions to the trust account administered by the supervisor. Failure to keep up with contributions is deemed a default and the company voluntary arrangement can be "aborted". This usually leads to liquidation or receivership.
   
   
10. In our opinion the best way to avoid this is to structure the deal on the following basis. Prudent forecasts of directors should be further scaled back and modest forecast profits should be used as the basis for contributions BUT:
    
    i) No more than 50% of profits after tax and debt repayments over the deal period should be contributed.
    
    ii) Contributions should be stepped to match profits achieved.
    
    iii) Any lump sum contributions during the currency of the CVA should be avoided where possible.
    
    iv) The use of a profits ratchet allows higher repayments if modestly forecasts profits are exceeded.

Even if the approach outlined here leads to small repayment levels to unsecured creditors, the creditors usually prefer sensible contributions to hopelessly optimistic forecasts.

Provided the company conforms to the CVA proposal and makes its contributions, then the CVA continues for the agreed period. The supervisor is generally not involved in the business (in our CVA's). THE DIRECTORS REMAIN IN CONTROL.

What if things don’t go well?

If the company is not performing well and yet it would still appear to be viable, then it is theoretically possible to reconvene the creditors meeting at any time to ask the creditors to consider amendments. If the Supervisor has concerns, he can also ask the court for directions. In most cases the directors should inform the supervisor if there are any material changes to the company or its business.

What happens at the end of the CVA period?

Once the agreed period is completed and the supervisor has issued a completion certificate, then the company leaves the CVA state. Any remaining unsecured debts (where partial repayment was approved) are written off and the directors continue to run the business for the shareholders.

Now having read all of this don’t you feel better? If so, that’s the first step to fixing your business problems. Call now or browse this site for other ways to leave the misery of cashflow problems and insolvency behind you...

You did really save my life/family, without you I would now be bankrupt and have no family home! I’d be 46 years old and skint (and no motorbike)! You gave me and my staff a fighting chance and you really did deliver everything you promised to us!. I am happy to be a referee for KSA"

Be like Dylan P, choose your advisors carefully get the right advice for your business!

Summary of the CVA mechanism.

Clearly, the issues raised above demand that the directors or proposers of the CVA should take expert advice. Before taking advice make sure you understand the company’s position, you have read and understood our guides to the other options available. Then meet with the board if you have other directors, prepare the information you need to present the company’s position and question the merits of each option you think is appropriate.

Then choose advisors with care, ask them the following questions

• How would you structure a CVA proposal?
  
  
• How many of your CVA’s have been rejected by creditors?
  
  
• How many CVA’s have included descriptions of the management changes proposed and the cost attached.
  
  
• Do you have a good relationship with the VAS (Voluntary Arrangement Service)?
  
  
• Will you give me a detailed recommendations report, of around 15-25 pages, which contains all of your costs for the CVA (in writing) after a detailed 3 hour meeting?
  
  
• How many CVA’s have you been involved with?
  
  
• Finally ask the main question…”What is your success rate”?

It is also worth pointing out that the CVA is not a panacea for your company; but it is a very powerful framework for change and protection of a distressed but viable company. In reality although difficult to propose and get approved, getting the CVA approved is the easiest part of a rescue/turnaround– making a turnaround work is much more difficult and needs professional help.

Remember:

The CVA should aim to:

• Maximise creditors’ interests.
  
  
• Preserve viable but distressed businesses.
  
  
• Preserve economic activity and save jobs.
  
  
• In time return value to the creditors.
  
  
• Provide a real prospect of a return for shareholders

Still got questions? Then click here for CVA’s FAQ’s or here for a flowchart or give our team of advisors a call on 0800 9700 539 now, or by email

“But my bank, my creditors, my staff and customers will have huge problems with this”

If you have worries about the CVA tool, why not visit the new guide to CVA Worries here!

Now that you have read our guide(s) we hope we have demonstrated that we know how to use the CVA mechanism based upon many years and hundreds of successful CVA’s. We are regarded as one of the UK’s leading specialists in this rescue method, so email or call the experts now.

KSA is one of the UK’s leading turnaround practitioners in the UK and specialises in the CVA. With experience in over 300 CVA’s over 14 years we are able to deliver innovative deals that can protect your company. KSA can also assist tired and worried directors to recover their confidence and drive the turnaround that is an essential part of a successful CVA.

Thank you for visiting our CVA website, we hope we can be of assistance to your company.

Useful Guides to CVA:

Company Voluntary Arrangement Detailed Guide - all you need to know about CVA’s

Company Voluntary Arrangement FAQ’s – frequently asked questions from our users.

Company Voluntary Arrangement Flowchart – a fast pictorial view of the process of CVA

Company Voluntary Arrangement Case Studies - over 25 case studies click now!

“NEW” CVA Worries. Or common replies like “We Cannot Use the CVA mechanism because”:

Do you want more details on how the CVA mechanism works? Then click on the links above. If you prefer click the printer icon to print out this guide.