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Company Voluntary Arrangement or CVA Frequently asked questions

1st December, 2021
Keith Steven

Written ByKeith Steven

Managing Director

07879 555349

Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He is the managing director of KSA Group Ltd - a specialist firm of turnaround and licensed insolvency practitioners. Keith was nominated for Turnaround Practitioner of the Year 2014 at the National Insolvency and Rescue Awards in 2014.

Keith Steven

These questions and answers will give a more detailed background to the technique. If you have any further general or specific questions email us by clicking here

These questions are the ones we hear most regularly – remember your situation will be unique to you, so call us on FREE phone 08009700539.

Q: If we propose a CVA what will the banks reaction be?

A: In our experience if the bank is presented with a vague “we might do a CVA” approach they will become very worried, very quickly. As you will recall from the CVA guide page, preparing the CVA is the job of the directors and their advisors. A properly structured and pragmatic deal that is based on reasonable assumptions will be much more acceptable to the bank. In other words, prepare the draft CVA with your turnaround practitioner and try to build an outline for dealing with the secured creditors. Then approach the bank. The local branch manager must pass the proposal to his/her debt recovery unit and cannot (usually) affect the outcome of the deal – if he/she understands the business well and is friendly he/she will probably support the deal.

Remember, the bank is (usually) secured, therefore the CVA cannot bind the bank in legally, but conversion of the overdraft into a longer term loan may give the bank more comfort that the company is keen to repay the debts. Talk to a turnaround practitioner who is used to dealing with banks.

Remember banks are in the business of financing and helping customers not knocking them over unnecessarily!

Q: Will I be able to get finance for my company if it is in CVA?

A: Yes you will but it may be more expensive as the company is deemed as a bit riskier but there are lenders who are prepared to do it.  See our page on funding your company in a CVA on our sister site.

Q: Someone told me that if we do a CVA the company has to pay back 100p in the 1 or the tax people will reject the proposal, is that correct?

A: NO! The amount the company pays back should always be based upon affordability, not some arbitrary number. We always work out a 5 year programme with supporting and highly detailed forecasts. Then the result is a better structured longer lasting CVA.

The HMRC people will be happier to support that plan than a half baked scheme that takes the total unsecured and tax debt and divides it by 24 months to get a simple 100% repayment. This method is doomed to failure!

Under the law there is NO minimum payment or dividend, as it is known. The law simply lays out a method for offering a deal to the company’s creditors. In our CVA deals the average is under 40p in 1 repayment 97% of those deals have been approved.

Q: I don’t think that my creditors will continue to supply me if I go into a CVA?

A: This is the most common worry. But YES they will supply you. They need to maintain their sales to your company, as much as they don’t like losing the money owed. We spend a lot of time on creditor liaison. By carefully explaining what the company is doing, how it will be in their best interests and asking them to work with the company and ourselves, we ensure that creditors are kept informed and on side. Don’t expect any credit terms or any favours. But being honest and open with them pays dividends in the long run.   In the end not paying your suppliers on time and having them issue threats is even more detrimental to your business.  If we think you can pay them back completely over time then we can always look at a time to pay arrangement whereby we do a deal to pay back all of the debt over an extended period.  Also, do not forget that a CVA can be 100p in the £1 and that is binding on all other creditors.

Q: If we propose a CVA what will HMRC do?

A: HMRC has a duty to consider the deal. The normal process is for the turnaround practitioner to call HMRC and say a CVA is being prepared. The collector or debt recovery unit will then pass the file to the central voluntary arrangement department in Worthing. They will consider the document very carefully and vote accordingly. They will not (usually) collect any tax and NIC between notification and the creditors meeting.

Q: Should I tell my best customers?

A: There is a view (which we share) that the key trading “partners” of our business should be aware of what is going on. I think a controlled approach (once the deal is proposed) to key customers will be much more beneficial than allowing them to hear “through the grapevine”.

Q: We are about to sign a new contract with a very important customer – if we propose a CVA what should we do about them?

A: Often clients think that the new contract is dependent upon the quality of your product and or service, but the customer will be checking the company’s ability to fund itself and to be in business some months or even years down the line. Again a concerted and controlled approach (typically led by the turnaround practitioner) will often generate positive results. Talk to your advisors about this and decide on appropriate action.

Q: What will my creditors think?

A: Of course they will be disappointed – think what your reaction is when a customer fails, but with the correct approach they will understand. Perhaps they realise that you have been under pressure for a while and that by proposing a CVA you are trying very hard to protect the business. By proposing a CVA you are demonstrating that you are trying to maximise creditors interests so it can often be viewed positively

Q: Should I involve my employees will they walk out?

A: It is our opinion that you must involve them when the time is right, they’re the people who are going to help deliver management’s plans.

A: Not unless they want to suffer financial hardship. Voluntarily leaving will negate their chances of benefits. If they have a new job to go to there is little however to be done to stop disgruntled employees leaving. But if the employees can be involved as part of the recovery – perhaps by offering a share package as part of the long term strategy, the key employees can often be retained.

Q: A Bailiff or Sheriff has a controlled goods order, if we propose a CVA what should I do about that?

A: It is all about communication. We would advise talking to them when the time is right, gently pointing out that the assets actually are charged to the bank (or other secured creditor) and that the company is seeking to maximise all creditors interests by proposing a CVA. They will listen if talked to in a mature way. Payment of their outstanding costs can often remove the pressure whilst not actually paying the petitioning creditors debts.

Q: The business is viable but why do a CVA – why not just “dump it”?

A: If you are determined to liquidate and start again perhaps even the strong economic arguments against liquidation are above your head. Remember the goodwill, tax losses; costs of liquidation, increase in creditors claims and reduction in value of assets are powerful arguments to preserve a viable company. You also have a legal and moral responsibility to maximise your creditors interests.

The risks of dumping it to avoid paying your creditors include – disqualification as a company director, being made personally liable under the Companies, Insolvency and Criminal Justice Acts, and being pursued for any misfeasance or wrongful trading. Of course the risks are small but you should carefully consider and weigh them up.

Q: What happens to my Personal Guarantees if we propose a CVA?

A: They are guarantees that cannot be removed unless and until the debt is paid off. The longer term repayment to secured creditors should be considered as part of the overall restructuring. Once the debt is cleared there is no reason why PGs cannot be removed.

Q: We have big tax losses – won’t we lose them in a CVA?

A: No.

Q: Can the company be protected from an aggressive creditor while we propose the CVA?

A: Yes there are two methods, one relies on case law and the other on the new Insolvency Act 2000. For a full explanation of how the new Acts moratorium process works talk to a turnaround practitioner or an insolvency practitioner. In case law, providing a creditor has less than 25% of the overall debts of the company then they can be required to consider the proposal even when a winding up petition is issued. (Dollar Land Feltham & Ors)

Q: Can we continue to trade while we propose the CVA?

A: Provided it maximises creditors interests, it is essential to keep trading.

Q: What happens to the HMRC payments?

A: See answers to HMRC questions above. You will need to continue paying PAYE and VAT going forward as you will need to show that the business is viable.  It also helps goodwill and increases the likelihood of them voting in favour of the proposal.

Q: Is it expensive? How do we pay the cost of a CVA?

A: In comparison to other forms of insolvency, no it is not expensive. Individual circumstances determine the costs; but do speak to a turnaround practitioner or an insolvency practitioner about this area. Because payments to the Crown and other non essential creditors are suspended whilst putting the deal together, cash flow often improves allowing payment. However, many IPs and practitioners will consider spreading the cost of their work to match cash flow ability.

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

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