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 legally binding agreement that helps struggling but viable businesses manage their preferential and unsecured debts while
continuing to trade.
The CVA process offers several significant advantages for businesses. It provides protection from legal actions like winding-up petitions, while allowing companies to restructure their costs and debts effectively. Companies can continue trading throughout the arrangement, working towards recovery while maintaining director control. It’s a versatile solution suitable for all types of company, LLPs or partnerships. It is powerful government backed rescue mechanism introduced by the Insolvency Act 1986.
As an alternative to liquidation or administration, a CVA offers a structured path to business recovery through debt management. In fact, the Government published a report in 2022 that found the mechanism was fair to creditors.
To proceed, the CVA requires approval from 75% of creditors (by value), after which it creates a legal moratorium protecting the company from creditor actions. The process typically runs between one and five years, with a licensed insolvency practitioner supervising the arrangement and monitoring the company’s financial health.
KSA Group has successfully implemented over 500 CVAs, and, in our opinion, it is the best rescue tool for a company burdened by historic debt. For expert advice on whether a CVA could help your business, call 0800 9700539 or 07833 240747 (out of hours) for a free consultation with our specialists.
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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A Company Voluntary Agreement can be a viable option for businesses facing financial difficulties, but it’s not suitable for every situation. To qualify for a CVA, a company must generally meet the following criteria:
Read our breakdown of the CVA process below, or view our flowchart summary here.
First, you should select experienced turnaround practitioners or insolvency practitioners to guide your CVA process. They should be regulated by the Insolvency Practitioners Association, The Institute of Chartered Accountants England and Wales, or The Insolvency Service and have a strong track record of successfully carrying out CVAs for their clients.
Your advisors then conduct a thorough review of the business, preparing detailed proposals, a statement of affairs and financial forecasts. If your financial and accounting information is poor or non-existent, your company may not suitable for this process.
While the proposal is being put together, companies should carry out the following guidelines to increase their chances of a successful outcome:
In addition, your company typically will not need to pay PAYE, NIC or VAT in this hiatus period.
However, it is wise to start paying these taxes if the CVA preparation is taking a considerable time to demonstrate viability to HMRC.
Though they are not bound by the CVA, it is a good idea as the CVA is being proposed to keep secured lenders informed. Showing them that you are on the way to putting the company on better footing will prevent creditors worrying about their exposure. Our expert advisors will liaise with the lenders to ensure they are fully appraised of the proposed financial and cost changes and the structure of the CVA plan.
Once ready, the nominee (licensed insolvency practitioner) reviews and approves the CVA proposal to ensure that it’s appropriate, achievable, and maximises creditors’ interests. This report is then filed in the Insolvency and Companies Court and is given a Court Originating Application number.
All creditors receive the proposal for consideration over a 17-28 day review period.
At the creditors meeting, the creditors vote on the proposal; the CVA is approved if 75% of creditors vote in favour (whether in person or by proxy). Do remember it is not 75% of all creditors, it is 75% by value of those votes cast at that meeting. If creditors have approved the proposal, it is carried whether shareholders approve or not.
Once approved, the voluntary arrangement becomes legally binding on all creditors. Directors maintain control while making agreed monthly payments administered by the supervisor.
Provided the company conforms to the proposal and makes its monthly CVA contributions, then the CVA continues for the agreed period. Failure to keep up with contributions can lead to the arrangement being aborted, usually resulting in liquidation or administration.
It should take 3-4 months to implement a Company Voluntary Arrangement, from start to finish. To speed up the process, it’s essential that company directors are organised and efficient in responding to the requests of their advisors. The quicker information gets to them to build a statement of affairs, the quicker the proposal can be filed in court.
A CVA typically lasts for between 3-5 years so it is not an undertaking to be taken lightly. During this period, HMRC debts (VAT and PAYE) must be repaid first, usually within years 1-4. Other unsecured creditors then receive between 5p-100p per pound, depending on the company’s
repayment capacity.
In some cases you can hive the business. What this means is that the business can be transferred to a new company while the old entity receives management fees to repay creditors
through the CVA. This innovative restructuring needs to be carefully planned, which is why USING SPECIALIST EXPERT CVA ADVISORS, SUCH AS KSA Group, who own this site IS ESSENTIAL
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.
A CVA typically has significant implications for shareholders. During the arrangement, shareholders MAY NOT RECEIVE DIVIDENDS. However, if the CVA succeeds in the long term, shareholders benefit from owning stakes in a financially healthier business. When the CVA ends dividends payments can be made in future. While shareholders rank below creditors in terms of priority, a successful CVA offers better prospects than the alternative of insolvency, where shareholders lose their entire investment.
A CVA often requires reducing costs, which can mean job losses and property/facility closures. However, this is necessary to avoid terminal insolvency and the far greater job losses that would come with it. Management may have to make changes to the business, for it to be viable
Additionally, as part of the CVA, directors have their future pay rises limited and in some cases they may need to take pay cuts. While difficult, a CVA allows the business to continue trading and emerge stronger, with the guidance of experienced advisors.
All unsecured creditors are bound by the CVA terms, regardless of whether they voted for or against the proposal. They must submit proof of debt to the supervisor and will receive dividends on those debts over the CVA’s duration, typically 5 years. Creditors/suppliers are expected to tighten credit terms, which is reflected in the company’s forecasts.
Creditors can challenge the CVA proposal if they believe it is unfairly prejudicial or there are material irregularities. However, such challenges must be made within 28 days of the creditors’ meeting where the CVA was approved. Such challenges to CVA decisions are very rare indeed.
The main difference is that, during administration, the Administrator or Insolvency Practitioner runs the company whereas, in a CVA, the Director retains control of the company; this is providing they abide fully by the terms of the CVA agreement.
Other important differences include:
The exact cost of your company voluntary agreement will depend on the following factors:
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 had an initial meeting.
If you want to watch a video on the process see our CVA Video
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”
