What is a CVA (Company Voluntary Arrangement)?

The KSA Group started taking formal insolvency appointments in 2009 with the merger of KSA Group and Marlor Walls in the summer of that year.Since then we have learned a massive amount about the technique, we’ve gained experience from dealing with over 320 CVA appointments between 2009 and September 2022 . That’s 320 crisis situations - devising appropriate rescue and turnaround strategies together with our clients’ boards of directors, their lenders investors and stakeholders like creditors, landlords and employees.Many in the insolvency markets have a negative approach to the CVA tool. Variously over the years we have been told that “CVA doesn’t work, they are never the best solution, they hardly ever succeed. Creditors get nothing. HMRC will not support a CVA” and we understand that approach. Often clients or prospective clients report to us that other insolvency firms rubbish the CVA tool. Perhaps that’s why CVAs are not that common. Only 165 have been approved nationally in the year to 30th September 2023.We beg to differ. A well structured, “fit, fair and feasible CVA” scheme can:Rescue viable businesses when a critical event has occurred. Help a determined management team rebuild a failing business. Save jobs of employees. It is likely that KSA saved over 11,000 jobs from 2009-2022. Save directors livelihoods and health. Return money to creditors: KSA has distributed £31m to creditors 2009-2022. This excludes secured debts and secured factoring facilities, much of which have been or will be repaid. Repaid £17.9m to HMRC between 2009 and 2023, remember this for the most part when HMRC was an unsecured creditor (2009-2020). That’s taxpayers money. Saved creditors money. Preserved 320 customers for thousands for suppliers, accountants and professional advisors.Nobody knows more than the KSA team, that CVA rescues are tough to construct, tough to implement, and tougher still for companies to successfully recover from.Diligent and organised directors can use this enormously powerful tool, case law and best CVA practice to drive a turnaround but only if guided by experienced turnaround and insolvency professionals. Be under no illusion this is tougher on the directors than anything they will do in their careers. Emotionally, intellectually and physically the CVA led turnaround requires directors to have resilience, physical and mental determination and a good guide.Of course, not all CVAs reach full term but the process secured jobs, paid back creditors a good chunk of what they were owed and with that helped reduce directors liability under their personal guarantees!Conversely, some clients paid off a 3-5 year CVA scheme debts in 6-18 months. Others went through mergers and acquisitions processes, which preserved jobs and businesses. Many plodded on to successfully pay back the CVA as planned. Still the key for us is we did our best to help our clients and creditors recover from a crisis.It has to be said that even with KSA’s “evangelical zeal for CVAs “ as an insolvency firm, the majority of our work by case numbers is normal voluntary liquidations and administrations. Too many SME directors leave the decision to take advice from the insolvency world far too late. Would we have rescued more of these liquidations had the directors only approached us sooner? Impossible to tell.Our final point would be to funders, lenders, investors, VCs and family office investors. In the main, secured creditors stand outside of a CVA process which can lead to dilution for preferential and unsecured creditors. What do you have to lose by encouraging your clients or customers to take advice on RESCUE options like CVA first?The CVA team at KSA group is made up of creative turnaround advisors, creditor liaison experts, tough debt negotiators, brilliant financial modellers and pragmatic insolvency practitioners. We will always look at rescue and closure options impartially and based upon our professional assessment of viability. Yes many directors come to us liking the CVA option, unfortunately many of these businesses or directors simply don’t have the necessary attributes for a rescue.Now, as a team we have, collectively over 500 company voluntary arrangement deals, built, filed and approved by creditors, we believe we know a fair deal about this rescue tool! Get in touch if your client, customer, investee or your company is interested in leading edge CVA advice. See our expert guide for directors below.DOWNLOAD OUR 79 PAGE GUIDE ON CVAS

The advantages of a CVA are that the Board and shareholders generally remain in control of the company. It has much lower costs than administration or receivership and is much less of a public event than administration

A CVA may be rejected by the creditors or shareholders for a number of reasons. The most likely is that they feel the proposal is not fair or likely to succeed. You can reduce the chance of a CVA being rejected by following some basic rules.

We have heard that HMRC will not support a CVA?   Now, since 2021 that HMRC has become a preferential creditor in insolvency, I have heard insolvency practitioners say that HMRC will not support a company voluntary arrangement. Is this true? No, it is not true. Having been involved in company voluntary arrangements and advising directors on their options since 1996 we can safely say that HMRC will take each case on its merits.Is a CVA the best option for creditors? Or is administration or liquation the best outcome?It is for the insolvency practitioner and the directors to work that out together.HMRC will approve company voluntary arrangement proposals if they are properly structured, well thought through, supported by a detailed financial forecast and a statement of affairs and comparisons of outcome to show the difference between liquidation or a CVA. But one of the key tests is this:  IS THE BUSINESS VIABLE?Additionally, HMRC will not support CVAs when there has been poor management, lack of financial information, regular late filing of tax returns or annual accounts and lots of tax arrears going back for a long time. We call this the compliance test.The fact that they are secondary preferential creditors, in my view, will not count for too much except that it may make them more likely to accept CVAs where there is a good dividend outcome and evidence of viability. “What will management change to make the CVA and the company successful” is their key question, not what will preferential status mean for HMRC’s recovery.So, the key decision for all directors is to decide whether the business is viable, subject to being restructured and costs cut perhaps, not whether HMRC is a preferential creditor. In our view the focus should be on what is a sensible outcome for the creditors, what changes will the business and management need to make to make the CVA a viable proposition, and putting the best foot forward in essence. It is not enough to simply say “well you will get less in liquidation”.The HMRC Combined Voluntary Arrangement service has long experience and expertise in looking at all voluntary arrangements in the United Kingdom. A high-quality proposal has a better chance of being approved than a blunt “take it or leave it” approach that may advisors seem to take. Many say how much is the overall debt and then simply divide that by 36 and there is your CVA monthly payment?! Is that affordable?  Our team will work carefully with you to produce flexible financial forecasts that ask the “what if” questions that change requires. This is good CVA management and good CVA planning.HMRC  being a secondary preferential creditor will mean that all contributions made into the CVA scheme will be allocated to HMRC until it is paid 100p in £1, the remaining contributions will then be paid to the other unsecured creditors. The same process existed in the period between 1986 and 2003, therefore KSA was writing CVAs with this debt repayment structure for many years prior to the change in September 2003.  Our prediction is that CVAs will still be acceptable to HMRC, but the QUALITY of the CVA proposal and a viable company, with good management will always stand a better chance of approval. So choose your CVA advisors wisely!To speak to the UKs leading CVA experts please give us a call or click here to chat. Our website has been providing assistance to directors for 20 years this year and we have been helping directors with their company problems since 1996. We know quite a lot about CVAs, having been advisors to thousands of companies in that time.

It is possible to make staff redundant at no cost to the business by going into a CVA. If you feel your business could only survive if you could cut headcount quickly by 25% but you think this is too expensive and impossible to do then please read this page.