Written ByKeith Steven
Managing Director
Keith is the Managing Director of KSA Group Insolvency Practitioners which has been established for 25 years. The company has undertaken more CVA led rescues than any other firm. Read our case studies to see how.
A Company Voluntary Arrangement (CVA) is a powerful, legally binding agreement between an insolvent company and its creditors. This arrangement allows a portion of its preferential (HMRC) and unsecured debts to be paid back over time, enabling the company to carry on trading as usual.
To be approved, 75% of the creditors, by value, who voted need to support the CVA proposal. Once the proposal has been approved, all unsecured creditors are legally bound by the arrangement. Think of it as a loan to repay some or all of the company’s unsecured debts.
A CVA places a legal ring-fence, called a moratorium, around the company and stops creditors from attacking it. This process allows a viable but struggling company to repay some or all its historic debts, over time while the directors remain in control. The CVA is monitored by a supervisor, who is a licensed insolvency practitioner, ensuring the directors adhere to the terms of the CVA deal and monitor the company’s financial health. To do this, the supervisor will require to see management accounts monthly until the CVA ends. Usually CVAs last between 12 and 60 months.
Our experienced advisors will work with secured lenders like banks (whose debt remains outside of the CVA arrangement) to ensure they support the debt restructure. It is vital to keep banks informed and involved for a CVA to be successfully implemented. Our team can also work with you and the lenders on restructuring the bank’s secured debt in certain circumstances.
The benefits for you are these: Directors stay in control of the company, with KSA Group providing support. A CVA can stop legal actions like winding up petitions if you use a quality, experienced turnaround advisor like us. You can cut company costs and restructure debts. It also allows the opportunity for the business to be sold if that is your preferred pathway and can facilitate refinancing, raising new capital, or sale through a mergers and acquisition (M&A) processes. AIM listed companies can use CVAs
The CVA process is not easy to implement but our expert advisors can guide you through the process. We have had more than 500 CVAs approved by creditors for our clients. Yes, they can be hard work, but if your company is viable, they are a much better option than closure or forced sale though an administration for example.
If your company is struggling, how can we help you make the business viable? It is hugely important to try and restructure the costs and focus on driving the recovery of profits. Only a CVA can do that quickly and with minimal cash outlay by the company to cut its costs. Our CVA advisors will guide you on cost savings like exiting landlords’ leases, making employees roles redundant (without the cost of paying redundancy) and returning unwanted equipment, machines or vehicles for example.
The process has been part of UK law since 1986 and is one of the Government’s preferred rescue options. A CVA is an alternative to liquidation (CVL) or administration. In fact, recently the Government published a report that found the mechanism was fairer to creditors.
In our opinion, a CVA is the best rescue tool for a company that is viable going forward but burdened by historic debt. The directors, remain in control, shareholder value can be maintained over time and your company can trade out of its current financial problems, provided management addresses the issues that caused the debts in the first place.
Speak to our CVA experts today free of charge and ask any questions you want on 0800 9700539
Please have a good read through our helpful guides and information on this site. Then why not call our support centre on 0800 970 0539 for a no obligation confidential chat. We can help put your mind at rest immediately that there ARE options to solve your company’s debt issues.
Out of hours one of our senior managers or directors will be available to answer any emergency calls on 07833 240747
Finally, it is ALSO a good deal for creditors as they retain a customer and may receive some of their debt back over time.
A CVA usually lasts for between 3-5 years so it is not an undertaking to be taken lightly. However, it is important to note that VAT and PAYE must be paid back up to 100p in £1 first in a CVA over years 1-4 or 1-5, before all other unsecured creditors. Then trade and suppliers will usually receive between 5p and 100p in every £1 of their debts, depending on what your company can afford to pay back.
In special circumstances you we can hive the business up to a new clean company, and it can trade with customers and suppliers. The old company gets a management fee to pay the creditors back. This innovative restructuring needs to be carefully planned, why not call Keith Steven and discuss your thoughts on 07974 086779
Read our case studies of how we have rescued companies using a CVA
As leading turnaround experts, who have been helping directors with innovative CVA plans since 1996, we thought we should put all (or almost all!) of our expertise and experience into this 79 page Experts Guide and give it away to worried directors who are considering their options. Please take time to read it, as its hugely powerful and helpful when planning how to restructure your business and drive a turnaround of your company’s performance using this powerful tool.
AND it is fast to download and more importantly it is FREE and you do not need to provide your company details to get it. Just click the link below.
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Directors appoint advisors like turnaround practitioners or insolvency practitioners (IPs) such as KSA Group to assist in constructing the proposal. KSA Group is the owner of this website and it delivers class leading turnaround and insolvency advice, we build innovative CVAs, undertake prepack administration cases and perform many liquidations. We are regulated by the Insolvency Practitioners Association.
Before appointing any other turnaround or insolvency advisors to propose a CVA for your company, we suggest you ask them about how a CVA works and how many they have done for their clients. Most IPs avoid the CVA option, as it is very complex and difficult, preferring simpler liquidation work instead.
KSA Group will undertake a detailed review of the company, its people, markets, and systems. This includes preparing a detailed formal proposal to the company’s creditors, a statement of affairs, a comparison between liquidation, administration, and CVA outcomes for all classes of creditors. Our team of financial forecasting experts will assist the directors in building realistic and achievable forecasts. This involves questioning all financial information and estimating sales and margins conservatively. If your financial and accounting information is poor or non-existent, your company is not suitable for this process.
Whilst the proposal is being put together the company should not significantly increase or decrease debts to any creditor during this period. Suppliers should be paid for new supplies made, and the company’s operations continue as usual. During the CVA production or “hiatus” period, current assets such as WIP and debtors are collected. The process allows the company to reduce employment and overhead costs, which wouldn’t ordinarily be possible. This includes terminating employment contracts, exiting rental obligations, and reducing other onerous costs. The resultant and increased liquidity should be used to fund the difficult period between appointment of CVA advisors and filing the proposal document at court.
In addition, the company normally does not need to pay PAYE, NIC or VAT in the hiatus period as HMRC generally proves the debt to the date of the creditors meeting. However, it is prudent to start paying these taxes if the CVA preparation is taking a long time as it demonstrates to HMRC that the company is viable going forward.
Although the secured creditors are not bound by any CVA proposal it is a good idea to involve them rather than them finding out by other means. If they can see that you are able to put the company on a stronger footing, they shouldn’t be too worried about their exposure. KSA will liaise with the directors and the secured lenders to ensure they are fully appraised of the proposed plans, the proposed financial and cost changes and the structure of the CVA plan.
Once the draft CVA proposal is ready, it’s reviewed by the nominated supervisor (who is also called a Nominee), who has to be a licensed insolvency practitioner, to ensure its appropriate, achievable, and maximises creditors’ interests. They will separately and independently interview the directors as part of this assessment process and discuss the plan in detail with the board.
Then the nominee or nominees will report to the creditors that they believe the CVA is “fit, fair and feasible” and it should provide the best outcome for all creditors. The nominee must also be prepared to act as the future supervisor. This report is filed in the Insolvency and Companies Court and is given a Court Originating Application number.
After Court filing is complete, the proposal is sent to all creditors, who then consider it for a minimum notice period which is usually 17-28 days, before the decision-making process (creditors meeting) is held. We usually provide the Nominees report and the CVA on our online portal, we send a letter and email to all listed creditors. More information on how a CVA affects creditors
At the decision-making process (creditors 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 countback vote excluding connected creditors is taken and provided that not more than 50% of creditors voted against the proposal it is approved. Do remember it is not 75% of all creditors, it is 75% by value of those votes cast at that meeting.
However, if creditors have approved the proposal, it is carried whether shareholders approve or not.
If both meetings approve the proposal, the chairman issues a report to all creditors and the court. Once approved, all notified and included creditors are legally bound for the debt “frozen” in the proposal.
This means they cannot simply take legal action to chase the debt whilst the company is in CVA for old debts. However, new suppliers or debts must also be paid on time as they are NOT bound into the CVA.
The company must make agreed contributions to a trust account administered by the supervisor. Failure to keep up with contributions can lead to the arrangement being aborted, usually resulting in liquidation or administration.
Provided the company conforms to the proposal and makes its monthly CVA contributions, then the CVA continues for the agreed period. The supervisor is generally not involved in the business. THE DIRECTORS REMAIN IN CONTROL.
In future, 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 changes to the CVA itself, also known as amendments. If the Supervisor has concerns, he can also ask the Court for directions. In most cases the directors should inform the supervisor EARLY if there are any material changes to the company or its business.
It might be easier to look at this process in a flowchart (opens in new tab)
The whole process from contacting a firm like us to the approval of the proposal by the creditors should take 3-4 months.
Remember that creditors actions and the pressure does come off the moment you start the process but will come binding once the creditors agree. The more organised the directors, and the quicker they can get information to us, the quicker the proposal can be filed at the court. Of course, there may delays due to changes of circumstances. However the quicker information gets to us to build a statement of affairs the less likely there will be problems.
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.
As a condition of a CVA being agreed there will no doubt be a demand that costs are reduced. This can mean closing down of warehouses, shops etc with the loss of staff. However, as mentioned before, the main purpose of a CVA is to AVOID terminal insolvency where there will be more job losses and the returns to creditors will be even less. Management can be blamed for problems in the company and there may need to be changes at board level. Often a Non executive director can be brought in with experience of turning around firms to lend expertise and help the directors survive the rigours of the CVA. During a CVA it is standard practice that the directors do not have any pay rises and of course may agree to take pay cuts.
Any unsecured creditors owed monies prior to the date of the creditors meeting will be bound by the terms of the CVA. This is irrespective of whether they voted for or against the proposal, or even if they were not aware of it. They will need make a claim and provide proof of debt to the supervisor. They will then receive a dividend on the debt over the next 5 years. If you are creditor/supplier of the company then it is expected that you will tighten up your credit terms. This is assumed to be the case in our forecasts.
As mentioned earlier, during administration, the Administrator or Insolvency Practitioner runs the company whereas, in a CVA, the directors will retain control of the company, providing they abide fully by the terms of the CVA agreement.
Other important differences are as below;
This does depend very much on the following;
We will provide a written quote for all required fees, before we commence working on the CVA proposal. This is provided in our unique Strategy Report which we will prepare FREE OF CHARGE once we have been provided with your company’s details and we have met.
In the end, a Company Voluntary Arrangement is a deal and doing a deal involves talking to people and the stakeholders in the business. It helps if the company has good financial information and there is not a compressed timetable due to aggressive legal actions by creditors. By acting early this can be generally avoided.
Simply, once we are instructed all the creditors deal with us and we can effectively help the company to freeze payments to creditors until a deal is done. We take the creditor pressure away over time.
Working with our creditors liaison team we will discuss the proposed CVA with the creditors and this allows TIME to bridge the cashflow gap.
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 cashflow problems and insolvency behind you…
Speak to an expert now to see how we can help your cashflow recover.
In July 2024 26 companies entered a company voluntary arrangement as a way to restructure their debts and survive.
According to KSA’s managing director, Keith Steven “With the loss-making store shuttered, the company will be able to focus on sales through its profitable retail store and online sales platform, both of which have previously performed well financially. This instance demonstrates the significant impact that a well-structured CVA may have on cost reduction and ensuring the business’s survival and recovery. We’d like to thank HSBC Bank for its significant support for our client’s management and choice for using the CVA approach”