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What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement, or CVA, is a formal arrangement between your company and its creditors, where the company proposes a settlement in respect of its historic debts. Often the proposal is not for repayment of the debts in full, but a percentage of the debt, depending on the estimated financial performance of the company going forward.
The proposal can be by way of monthly payments based on affordability, or alternatively by way of a one-off, lump-sum contribution in full and final settlement.
This course of action may be appropriate if a restructure of the business is possible, to ensure its future profitability.
In this scenario, the company continues in its current form, under the control of existing management, but must meet its future financial commitments on time, as well as fulfilling the terms of the CVA.
A CVA is most often appropriate when a company has suffered from temporary cashflow problems that despite having now been resolved, have left the company with historic debt issues. This may have been brought on by the loss of a major customer or contract that have since been replaced.
What is our CVA approach?
At The Insolvency Experts, we can assist with reviewing the financial affairs of your company, together with future forecasts and projections, to ascertain whether a CVA is right for you.
We would only seek engagement to act in respect of a proposed CVA, if we are confident that not only does the proposal have a reasonable chance of approval, but also that it is feasible for the future of the business.
A CVA offers the ability to not only restructure or defer debt repayments, but also the ability to restructure the business internally. Examples may be that a division of the business may no longer be viable, and requires closure. This may result in a small number of redundancies, but also the ability to raise additional finance by disposing of assets that may no longer be required.
In most cases, any funder or bank with registered security over the company’s assets, will be specifically excluded from the CVA. This enables the business to continue use of existing funding lines, subject to the bank or funders agreement. At the outset, we will assist with any negotiations and discussions with the secured creditors, before any CVA proposal is prepared.
A CVA is particularly useful where the company’s customers are contractual. Most contracts contain insolvency termination provisions, meaning that they have the automatic right to terminate should a company enter Administration or liquidation. However, in a CVA, as the company continues in its existing form, there is an increased likelihood that contracts and customer relationships can be maintained.
How is a CVA approved?
Whilst it is understandable to be worried about the reaction of creditors when proposing a CVA (particularly if they are not to be repaid in full), generally their support will ensure that a better return to them is generated, than if the CVA is not approved and the company is forced into Liquidation.
As a result, providing the proposal is fit, fair and feasible, and it is demonstrated that this is the maximum the company can afford, many suppliers will seek to support your company through the CVA.
A CVA requires the support of 75% of its creditors by value, in order to be approved. In addition to the preparation and circulation of the CVA proposal, at The Insolvency Experts, we seek to liaise directly with your company’s creditors, to address any concerns they may have, but to also reiterate the benefits and increased return to them via a CVA.
Providing the requisite majority of creditors approve the CVA, it becomes a legally binding agreement for all creditors, irrespective of those who may have voted against.
As long as the terms of the CVA are fulfilled, together with meeting any future obligations on time, once the CVA has been concluded, any shortfall in respect of CVA creditors is written off, and the company exits CVA and continues as before.
What are the benefits of a CVA?
- If approved, it acts as a legally binding agreement for all creditors
- I allows you to settle historic debt over a set period, often at a reduced amount
- The company remains under the control of existing management and continues in its current form, both during and following conclusion of the CVA
- It enables your existing contracts to be retained
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