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Company Voluntary Arrangement (CVA) - A Debt Management Plan for Companies
CVAs are used in cases where the company is currently in trouble, but has signs of being viable and could well become profitable again; of course, the directors also need to be willing to continue.
In layman's terms, all the company debt is moved into one manageable monthly payment, so that the company can continue trading without the burden of winding-up petitions or liquidations being threatened. This allows you to move forward with out the pressure.
The conditions of a CVA (the CVA proposal) produces a binding contract for all parties, including all your creditors, to follow, and usually provide lower monthly outgoings for the company, while eliminating danger of legal action being taken while the CVA is active.
The terms will also specify the percentage of the debt that the creditors will be paid back during the period of the CVA.
How we can help you
CVAs can be a good way to solve serious debt problems, in sixty months or less, the company can be legally debt free. Once the CVA is completed all the debt should be written off.
From the start we will work with you to understand your company’s debt levels; we will then plan out the CVA. Once this is done we'll help put the CVA into action and aim to take the stress away by dealing with anyone you owe money to on your behalf.
If you think a CVA would be a possible route for your company call us now on 01472 254914.
Is your company eligible?
- The company must be insolvent (can't pay it's debts as and when they fall due)
- Projected cash flow forecasts must show that the company will be able to pay the agreed amounts of repayment to creditors
- The directors must be confident that the business has a viable future and a good prospect of recovery
The main benefits of using a CVA
- Pressure from creditors and HMRC is relieved while the arrangement is being prepared
- Legal action cannot be taken by creditors while the CVA is active, as long as the agreed terms are adhered to
- All payments to creditors will be centralised into a single monthly payment
- Company directors and shareholders do not lose control of the business
- The CVA is not public information: advertisement in the London Gazette is not required (as would be the case if the company went into any form of administration)
- Can stop a winding up petition from becoming successful (the CVA would need to be proposed within 7 days of the winding up petition, however)
- Cash flow is inevitably improved with reduced payments
- The deal is mutually beneficial for directors and creditors, who enjoy repayment of 20%-100% debt in a reliable manner
What does a CVA Proposal have to contain?
The CVA proposal is required to meet the guidelines of The Insolvency Rules 1986 – Rule 1.3 by law. A usual CVA will contain information about the business and the appointed IP (Names, addresses and contact details). It will include and in-depth information on the company’s affairs, including employee information, profits and significant transactions or events.
After this introduction will be the main proposals of the CVA, followed by information about the company’s creditors and debts. Documentation will need to be prepared to supplement the CVA.
How long does a CVA Proposal usually take to complete?
In usual circumstances, it will take an average of 6-8 weeks altogether. Around 1 month will pass between the appointment of the IP and posting the proposal to creditors, and the creditor’s meeting should be held 3 weeks after that. Keep in mind, however, that contributions to the trust account will be required for up to 5 years depending on the agreement made.
When can a CVA be used?
A Company Voluntary Arrangement must be proposed before a winding up order has been granted against your company. If you have already been served a winding up petition, or your creditors are threatening to issue one, then you must act quickly, but you still have time to set up a CVA and save your business.
Once the winding up order is granted, compulsory liquidation will commence, and at this point the possibility of the business recovering through any means is unlikely.
It is possible that if your company enters into administration, the administrator or liquidator will propose a CVA during the course of the procedure as a way to bring about a turnaround.
This is likely in the case of business with minimal assets, as they are likely to believe that a CVA would be more beneficial to creditors than to use the company’s assets to recover the debt. Likewise, a company in a CVA can also enter into liquidation.
How much does a CVA cost?
The main expense that will need covering will be instruction of a licensed Insolvency Practitioner to formulate and present the CVA proposal on your behalf. This is known as the nominee’s fee and will vary depending on:
- The amount of work involved
- The particulars of your case
- The insolvency firm of your choice
On average, the fee will vary between £5000 and £10,000, and the cost of supervising the arrangement will be decided by the creditors. As these fees come out of the money paid to the creditors it is the creditors who agree the fees of the IP.
At Forbes Burton we offer highly competitive rates, and we’ve helped hundreds of businesses avoid formal liquidation and dissolution processes. If your company is insolvent, the most important thing is to act quickly and avoid being accused of wrongful or fraudulent trading (never mind accumulating more debt than is needed).
So What are the Steps Involved?
- The Initial Assessment
An Insolvency Specialist or Practitioner is contacted by the company directors, who will determine whether a CVA is the best course of action for your company and its creditors.
- An Insolvency Practitioner is Appointed
Once a CVA has been recommended and an Insolvency Practitioner appointed, a draft CVA proposal will be drawn up for your creditors.
- Directors Consider the Proposal
The Company Directors will then read the draft proposal and any required revisions will be made at this point. The IP must believe that the CVA has a good chance of succeeding in order to nominate the process, so if directors feel that the company will be unable to keep up with payments, the IP is likely to recommend a CVL (Creditor’s Voluntary Liquidation) instead.
- The CVA is Filed with the Court
The final draft of the Creditor’s Voluntary Liquidation is then filed, given a legal originating number, and signed copies of the proposal are sent to all creditors. The CVA must be sent at least 3 prior to the creditor’s meeting.
- Creditor’s and Shareholder’s Meetings Are Held
At this point, the IP convenes a meeting of all the company’s unsecured creditors. It is common for creditors to send representatives to attend on their behalf or merely post or fax their proxy forms to accept or reject the CVA proposal. During the meeting the CVA will be proposed to creditors by the IP, and they are given the opportunity to request amendments to the proposal. At the same time, a meeting of the company’s shareholders will take place.
- Votes are Counted
During the creditor’s meeting, a vote will be held on whether or not the proposal should be approved. If an amount of creditors responsible for 75% or more of the company’s unsecured debt vote in favour of the CVA (including any proposed amendments) then it will be approved. At least 50% of the shareholders must also vote in favour in order for the proposal to be approved. Throughout these processes, the appointed Insolvency Practitioner will act as chairman of meetings.
- An Overview Report is Issued
If both of these meetings result in the CVA being approved, within the next 4 days the IP is required to issue a report detailing what happened during the meetings, who was present, and how each party voted. This will be made available to all of the company’s creditors and to the Court.
- Legal Action Against Your Company is Frozen
Once the CVA has been approved, any legal action against the company will be frozen and no further action can therefore be taken unless the CVA is defaulted on.
- A Trust Account is Set up
Finally, once the CVA is in effect, your company will be expected to make the projected contributions to a trust account. As long as these contributions are met, the company is able to continue operations as normal without the threat of being put out of business. Bear in mind that a Company Voluntary Arrangement is a legally binding contract, so if the terms are breached the IP will almost certainly have to petition to wind the company up by means of a compulsory liquidation.
I approached Forbes Burton to help me out of a situation that I was not capable of resolving by myself. I was in desperate need of some guidance and advice which was given freely and willingly on a regular basis. I was kept informed of developments at all stages of the process, and at no time was I contacted by any of my Creditors – a real worry to me.