What is a CVA?
A CVA is a company voluntary arrangement or CVA for short, often called CVA. It's been around for about twenty five years. It's a formal legal process that allows a company which is viable but has financial problems to restructure those financial issues and effectively start again, not quite debt free, but writing off quite a lot of the debt. The premise of the CVA is, can we offer to pay back x pence in the pound over y period of time?
For example, fifty p in the pound over, say, five years or a hundred pence in the pound over two years. There isn't a prescriptive format for what the CVA should offer. However, the process has to be set out properly under the guidance of the law and you will need an insolvency practitioner to act for you. Essentially, what you do is you prepare a proposal.
That proposal has three parts. The first part is the financial forecast to show where the business is going. The second part is a picture, if you like, or a statement of affairs to show what has happened and what the assets and liabilities are worth and what they might fetch if a CVA wasn't agreed. And the third part is essentially a story or a narrative to set out the deal to the creditors.
Once that's done, the insolvency practitioner takes it to the court and then sends a copy of the proposal to all of the creditors. It's not as scary as it seems. However, a creditors meeting has to be held and a director needs to attend that creditors meeting. At the meeting, it's important to to remember that the creditors are there to try and get a better deal.
You're trying to propose a deal. And at the end of the day, if everybody gets a deal, that's in the best interest of the creditors. We have to get three quarters of those creditors who vote to actually vote in favor of the CVA, and then it is approved. Thereafter, the proposal would set out what happens.
And usually, it's paying, say, a thousand pounds a month or five thousand pounds a month into a scheme for an agreed period of time. Once that, first year has elapsed, the supervisor of the arrangement, who has no power over the company, will distribute money to the creditors. So that's it in a nutshell. What you need to remember is very powerful for reorganizing the business.
We can take out cost. We can make people redundant, and the government will pick up the costs of those redundancies.
We can close factories or shops or warehouses, and we can terminate the leases that we have with our landlords. So if you're thinking about how to make the business viable, think carefully about a CVA. It's not for every business, but it is the most powerful insolvency tool in the UK and the most flexible tool in the UK. And finally, what is in it for the directors and the shareholders?
Well, essentially, the directors remain in control of their business. The shareholders can still have a stake in the business. They can't have dividends though. And what's in it for the creditors?
Well, they get something back that they wouldn't get ordinarily in liquidation or administration.
So there you have it. If you want to know more about CVAs, please read the guide on our website, company rescue dot co dot u k, and you can download a ninety two page guide to CVAs there if you go and find the right link. And if you need further information, please give us a call on our free phone.
