Company Voluntary Arrangement: A complete Guide

If your business is facing insolvency, it can be a difficult and stressful time. However, there are options available to help you turn things around. One such option is a Company Voluntary Arrangement (CVA), which can provide a lifeline for struggling businesses.

At Quotonga, our panel of licenced business rescue experts specialise in helping company directors in debt. They can provide same-day advice and support you throughout the CVA process, helping you to get your business back on track.

What is a CVA?

A Company Voluntary Arrangement (CVA) is a legally binding agreement between a company and its creditors.

It allows the company to pay off its debts over a fixed period of time while continuing to trade as normal.

The CVA is an insolvency process providing a way for the company to be rescued rather than sold off and its assets liquidated.

Entering a CVA can be a preferable alternative to creditors taking legal action against the company.

Creditors are likely to support a CVA proposal as it provides a greater chance of repayment than other options. However, the proposal must be reasonable and achievable.

To be approved, the CVA proposal must be agreed to by 75% of the company’s creditors and more than 50% of its shareholders.

If there is a difference of opinion between the creditors and shareholders, the decision of the creditors takes precedence, subject to any court order.

Once approved, the CVA becomes a legally binding agreement that all creditors must adhere to, regardless of their vote.

Who is eligible for a CVA?

Is your business suitable for a CVA?

If you are a limited company and facing insolvency, then a Company Voluntary Arrangement (CVA) might be an option.

However, to be eligible for a CVA, your company must be registered under the Companies Act of 2006. This act is the primary legislation that outlines company law in the UK.

Before applying for a CVA, you must be able to prove that your company’s future capital is capable of repaying the debts that you currently owe.

If your company has viable future prospects and profit, and these goals are attainable, then a CVA is likely to be accepted as there is a high probability that your company will be feasible post-CVA.

It is important to note that if your company is in the liquidation process or in administration, the respective liquidator or administrator is responsible for proposing a CVA, not the directors or company owner/s.

When considering a CVA, it is essential to determine if your business is suitable for it.

You must be able to show that your business could feasibly pay off its current debts in the near future, proving that the help you need from a CVA is only temporary and necessary at this current time.

Additionally, you must understand your current situation and be able to explain the reasons behind your debt levels and the necessity for a CVA. This will increase the likelihood of your CVA application being approved by creditors and shareholders.

If you are unsure whether your business is suitable for a CVA, we can put you in contact with our insolvency expert partners.

They can provide a qualified and professional Insolvency Practitioner to help you with the CVA process.

Advantages and Disadvantages of a CVA

A CVA can be a useful tool for businesses that are struggling with debt. It is important, however, to be aware of both the advantages and disadvantages of this process before deciding whether it is right for your business.

Advantages of a CVA include the fact that it is a legally binding agreement for all creditors, allowing you to settle historic debt over a set period, often at a reduced amount.

The company can remain under the control of existing management and continue in its current form, both during and following the conclusion of the CVA.

Existing contracts can also be retained, and the process is less public than Liquidation or Administration. Additionally, a CVA can help retain jobs that would otherwise be lost in an Administration or in Liquidation.

There are also several disadvantages to consider. Your business’s credit rating will be negatively affected, and the process can be lengthy with a fixed term that requires you to adhere to monthly payments, usually lasting for a few years.

The CVA could be rejected by creditors and/or shareholders, and there is no guarantee that your business will be completely viable after the CVA has been completed.

Liquidation or Administration could still happen in the future. Lastly, there may be some undesirable terms enforced by creditors or your CVA advisor, such as dropping contracts or redundancies.

Overall, a CVA can be a helpful solution for certain businesses struggling with debt, but it is important to weigh the advantages and disadvantages carefully before making a decision.

What Steps are Involved in a CVA?

Assessment/Consultation

When considering a Company Voluntary Arrangement (CVA), it is important to involve an Insolvency Practitioner immediately to ensure that you have the right levels of support and professional guidance.

Our expert insolvency panel 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 can provide an initial quote in regard to the costs of a CVA.

Before proceeding with a CVA, our experts would only seek engagement to act in respect of a proposed CVA if we are confident that the proposal has a reasonable chance of approval, and is feasible for the future of the business.

Proposal

When proposing a CVA, it is understandable to be worried about the reaction of creditors, particularly if they are not to be repaid in full.

However, 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, 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.

Meeting and Approval

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, 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 required majority of creditors approve the CVA, it becomes a legally binding agreement for all, irrespective of those who may have voted against it.

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.

By quickly taking back control, our experts will help you solve the problems that your business has.

How a CVA Works

To begin a CVA, you must first complete the Assessment, Proposal, and Approval steps. Once approved, you must implement the terms of the agreement into your business.

This includes restructuring debts, exploring redundancies if necessary, and reviewing existing contracts with the possibility of terminations.

The goal of a CVA is to become debt-free. Although there can be issues with a CVA, the typical outcome allows your company to continue trading without debt repayments and plan independently for the future in terms of goals and projections.

What Does a CVA Cost?

If you’re considering a CVA, you’ll want to know how much it will cost. The best way to do this is by arranging a phone call with one of our expert advisors. By completing the form below they will make contact with you to arrange.

How long does the CVA process take?

The duration of the CVA process can vary significantly as there are several factors that can affect the proposed timeline.

It is crucial to consider all the factors when you are informed of a timescale and be aware that this is subject to change. Potential problems could pause proceedings.

Does the CVA process affect employees?

Implementing a Company Voluntary Arrangement (CVA) can have an impact on employees. To reduce costs and plan for debt repayments, redundancies may be necessary.

CVA advisors can help inform affected staff of the redundancies, although this is always a difficult process.

However, where possible, redundancies will be avoided. Although scaling down a company can result in staff cuts, it is not always a necessary step.

The government provides funding for redundancy packages for eligible employees when a company enters a CVA, providing some comfort for affected staff.

It is important to note that not all employees will be affected by a CVA. If the business still has viable future prospects, some staff may remain.

The CVA aims to ensure that remaining employees have a potentially profitable business with a positive future to continue working for.

How Does a CVA Compare to Administration and Liquidation?

CVA vs Administration

When a company enters into a Company Voluntary Arrangement (CVA), the directors retain control over the company and its operations. Meaning the company can continue trading and running day-to-day operations as normal.

In contrast, in an administration, an appointed administrator takes control over the company, and they may decide to cease trading immediately.

Under a CVA, you won’t be assessed as a company director, but an administration would require management investigations.

Meaning a CVA offers more flexibility and control to the directors, while an administration takes away control and may lead to more investigations.

CVA vs Liquidation

In liquidation, a company ceases trading and has no further debts. The debts are paid through the sale of assets, remaining sales, and staff cuts. On the other hand, a CVA aims to avoid most of these actions and attempts to ensure future prospects and promote a viable business plan.

Similar to an administration, liquidation requires director/management investigation, unlike a CVA. The most important difference between the two is that liquidation is a complete way out of a company, while a CVA attempts to ensure future prospects and seeks to promote a viable business plan.

Overall, a CVA offers more flexibility and control to the directors, while an administration or liquidation may lead to more investigations and a complete way out of the company.

What Happens When a Company Goes into a CVA?

How Likely Are Your Creditors to Accept Some Form of Voluntary Arrangement?

If your limited company is insolvent, you can use a Company Voluntary Arrangement (CVA) to pay creditors over a fixed period.

If creditors agree, your limited company can continue trading. A CVA may be the ideal way to protect against legal actions taken by creditors. The terms of a CVA are likely to improve cash flow as creditors are bound by a contract, which often reduces monthly outgoings.

When negotiating a voluntary arrangement, you must make a full disclosure of your assets. It is a criminal offence not to disclose this information fully.

You must make an honest attempt to present a fair offer to the creditors. This offer is more likely to be approved if the outcome is better for creditors than the alternatives.

The relationship you have with your creditors can significantly influence the outcome of the proposal. It is therefore crucial that discussions with these creditors are undertaken in a professional manner.

If you believe that your business has a future, but needs some breathing space from pressing creditors, contact us today to discuss this process. The earlier you make contact, the more our experts can help you.

Once a company enters a CVA, all the creditors and shareholders who voted against the CVA (or did not vote entirely) are bound by the terms of the agreement until its proposed completion. Ongoing legal actions in reference to your company will automatically cease, and your only repayments will be in accordance with the proposed payment plan.

You will still remain in control of your business and its day-to-day operations. The employees not susceptible to redundancy will continue working as normal, though they should be informed of the ongoing process. Your customers, however, do not need to be informed of the CVA.

In simple terms, once a company goes into a CVA, they will have to repay agreed debts in accordance with the payment plan, potentially cut some contracts, e.g. surplus suppliers, have to make necessary employee redundancies, and follow all repayments and proposed changes for the agreed-upon time scale.

Getting a CVA accepted

Contact Our experts for CVA advice

If you are struggling with your business’s finances, a Company Voluntary Arrangement (CVA) may be the solution you need.

The Insolvency Practitioners at our panel of licensed insolvency practices can create a Voluntary Agreement Proposal based on your business’s finances.

This proposal will be put to your creditors, and with 75% approval, it can be accepted. Once accepted, it must be sanctioned by your shareholders before it can be implemented.

A trust account is then set up for payments to be made and for creditors to be paid if everything has been agreed.

A CVA can provide you with the time you need to improve your business’s cash flow, and it can help you retain key members of staff, giving your business the best chance of success. With the number of businesses facing insolvency set to rise, it is essential to consult with insolvency specialists to give your business the best chance of survival.

For more information on Company Voluntary Arrangements, contact us today. We can help you keep control of your business and avoid a winding-up petition.