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What is a CVA or Company Voluntary Arrangement? Let our experts explain.

13th October, 2023
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 has expert knowledge on the company voluntary arrangement (CVA) mechanism

Keith Steven
man about to climb ladder
  • The Advantages For Your Company
  • A Summary of a CVA
  • A step by step process of putting a company into a CVA
  • What happens at the end of the CVA period?
  • How much does it cost?
  • See below a Video explaining the CVA Process

Can we save your company?

A CVA or Company Voluntary Arrangement is a legally binding agreement with your company’s creditors which allows a proportion of its debts to be paid back over time. 75% of the creditors, by value, who voted need to support the proposal.

Once the proposal has been approved then all* unsecured creditors, are bound by the arrangement. The company can carry on trading as usual, and the directors remain in control. The CVA is monitored by a supervisor who has to be a licensed insolvency practitioner. The arrangement usually lasts for 3-5 years.

A CVA is the best rescue tool for a company that is viable going forward but is burdened by historic debt. The directors, who remain in control, are able to trade out of their current financial problems provided that they have addressed the problems that caused the debts in the first place.

This page will help you to discover what a company voluntary arrangement does, understand how it works and how it can help you stop creditor pressure and turnaround your company. It is similar to an Individual Voluntary Arrangement (IVA) but for companies.

If you do not wish to read through all the guides and information on the site, then you can call our support centre on 0800 970 0539 for a no obligation confidential chat.

Read why we are the experts on this rescue mechanism

*It is possible to exclude creditors from the arrangement by paying them in full but you will need good reason to do so (let us advise on this)

Advantages of a CVA For Your Company

  1. A CVA can improve cash flow quickly
  2. Stop pressure from HMRC tax, VAT and PAYE while the company voluntary arrangement is being prepared
  3. It can stop the threat of a winding up petition
  4. Terminate employment, payment/compliance obligations under leases, onerous supply contracts and all with NIL CASH COST
  5. Costs can be rapidly cut as expensive managers can be made redundant
  6. Also allows your company to terminate property lease obligations and vacate premises with NIL cash cost (using our expertise)
  7. All money owed to creditors is bundled up in one monthly payment to the supervisor
  8. Remove employees with no redundancy payments of lieu of notice costs (paid by the Government)
  9. Terminate onerous customer/supplier contracts
    Board and shareholders remain in control of the company
  10. Has much lower costs than administration or a Scheme of Arrangement
  11. It is not publicly announced like administration.
  12. You do not have to say your company is in a Company Voluntary Arrangement to your customers.

 

Finally, it is ALSO a good deal for creditors as they retain a customer and receive a some of their debt back over time, usually between 30p and 100p in every £1 of debts, depending on what your company can afford to pay back.

We can hive the business out 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.

 

As leading turnaround experts who have been helping directors  for over 20 years, we thought we should put all (or almost all!) of our expertise and experience into this 79 page Experts Guide to CVA 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.

DOWNLOAD OUR COMPLETE GUIDE TO CVA HERE

A Summary of a CVA

A CVA is essentially a deal between the insolvent company and its creditors. This deal places a legal ring-fence, called a moratorium, around the company and stops creditors attacking it. A CVA allows a viable but struggling company to repay some, or all, of its historic debts over time.

Directors stay in control of the company, with KSA Group providing support. It can stop legal actions like winding up petitions if you use a quality, experienced advisor. The directors need to be committed to saving the business. Also it allows the opportunity for the business to be sold or refinanced

The CVA 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 a liquidation (CVL) or an administration.  In fact, recently the Government published a report that found that the mechanism was fair to creditors.  You can view the report here.

When might a CVA be appropriate for a company?

  1. The company must be insolvent.  You can’t just write off some of the debt to try and improve profitability.
  2. The company must be viable if it was not for the historic debt. For instance, the company may have encountered a bad patch of trading or they have suffered a bad debt.
  3. The company must have some predictable and regular income.  Speculative businesses that have hopes (however realistic) for a big deal in the future are not suitable.
  4. The directors need to have been compliant with tax and regulatory filings for the company.
  5. Reasonable financial controls need to be in place.
  6. The directors have not borrowed extensively from the business that they cannot pay back over a reasonable time scale.
  7. The company does not owe a secured creditor significants sums that is likely lead to them appointing an administrator.  However, by compromising unsecured debts the position of the secured creditor is often improved.
  8. Finally the directors have the determination and drive to save the business.

 

A step by step process of putting a company into a CVA

 

Step 1 Appointment of Advisors

Directors appoint advisors like turnaround practitioners or insolvency practitioners (IPs) such as KSA Group to assist in constructing the proposal.

Step 2 Company Review

KSA Group will undertake a 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. A team of financial forecasting experts assist in building realistic and achievable forecasts. This involves questioning all financial information and estimating sales conservatively​​.

Step 3 Proposal Drafting Period

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 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​​.  This increased liquidity should be used to fund the difficult period between appointment of advisors and filing the proposal document at court.

Step 4 Payments to HMRC

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 preparation is taking a long time as it demonstrates to HMRC that the company is viable going forward.

Step 5 Talk To Secured Creditors

Although the secured creditors are not bound by any 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 worried about their exposure.

Step 6 Proposal Finalisation

Once the draft model is ready, it’s reviewed by the Nominee, who has to be a licensed insolvency practitioner, to ensure its appropriate, achievable, and maximizes creditors’ interests.  They will interview the directors as part of this process.

Step 7 Creditor Consideration

The proposal is sent to all creditors, who then consider it for a minimum notice period before the decision-making process (creditors meeting)​​.

Step 8 Creditors Meeting and Voting

At the 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 second vote excluding connected creditors is taken and provided that not more than 50% of creditors vote against the proposal it is approved. So remember it is not 75% of all creditors, it is 75% by value of those votes cast.

 

Step 9 Shareholders Meeting

Simultaneously, a shareholders meeting is held to decide whether to accept the proposal. A vote of 50% in favour is required​​.

Step 10 Approval

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​​.

Step 11 Payments to creditors

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​​.

 

Even if the approach outlined here leads to small repayment levels of 30-50% to unsecured creditors, the creditors usually prefer sensible contributions to hopelessly optimistic forecasts. Provided the company conforms to the proposal and makes its contributions, then the CVA continues for the agreed period. The supervisor is generally not involved in the business. THE DIRECTORS REMAIN IN CONTROL.  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 amendments. If the Supervisor has concerns, he can also ask the court for directions. In most cases the directors should inform the supervisor if there are any material changes to the company or its business.

What happens at the end of the CVA period?

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.

 

How much does a CVA cost?

This does depend very much on the following;

  • Total number of creditors
  • Number of employees,
  • The bank’s position,
  • What level of negotiation is needed.

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.

Contact us for a quote!

So how do we pay if we are in financial difficulty?

Simply, once we are instructed all the creditors deal with us and we can effectively freeze payments to creditors until a deal is done.

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 misery of cashflow problems and insolvency behind you… 

Speak to an expert now to see how we can help your cashflow recover.

To discuss how much we charge, please call us on 0800 970 0539

In February 2024 10 companies entered a company voluntary arrangement as a way to restructure their debts and survive.

 

See below a Video explaining the CVA Process