What Is a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement – or CVA – is a legally binding agreement between your company and its creditors, creating a repayment plan which makes debts more manageable.
A CVA is an alternative to liquidation, providing an opportunity for insolvent businesses to make a successful turnaround:
- Freezes company debts
- Offers legal immunity from creditors
- Reduces monthly overheads
- Typically lasts between 3-5 years
In this guide, we’ll explain how to know when your company is insolvent, how a CVA works, and some alternative options.
Contents
How Do I Know if My Company Is Insolvent?
A Company Voluntary Arrangement can only be pursued by businesses that are technically insolvent. If your company is struggling financially, but you’re unsure that it’s insolvent, you can find out by answering two simple questions:
- Can your company pay its liabilities as they fall due?
- Does your company have more liabilities than assets?
If the answer to either of these questions is yes, your business is insolvent. This is an important distinction, as it lets you know that you need to think about formal insolvency measures.
Keep track of your company’s solvency – your duties as a director fundamentally change when the business enters insolvency, and failing to uphold them can result in misfeasance charges.
What Are the Advantages of a CVA?
When you enter into a CVA, you agree to pay back a certain amount to your creditors each month, extending the time for repayment.
Doing so provides a range of benefits to struggling company directors, effectively dealing with debt without the drawbacks of other insolvency procedures:
- The company can continue trading
- Directors remain in control of the company
- All debts are frozen
- Overheads are reduced
- The company is protected from debt recovery action
- Allows directors to uphold their legal duties
A CVA is designed to keep businesses that are struggling with large overheads caused by debt – but which otherwise enjoy a steady stream of revenue – the opportunity to get back on their feet.
Your company will be protected from closure so long as it keeps up with its outlined CVA contributions.
What Is the Process of a CVA?
The CVA process is fairly straightforward: you draw up a proposal with the help of an insolvency practitioner before it goes to a deciding vote with creditors.
If successful, you’ll make one regular monthly payment over a period of 3-5 years, until your debts are resolved or written off.
You can find out more about the process by exploring the tabs below.
The first step in any insolvency process is getting in touch with an insolvency practitioner.
We’ll look at your financial situation and assess whether a CVA is the right choice for you. If it isn’t, we’ll suggest an alternative solution, protecting your legal and financial interests.
CVAs can only be administered with the assistance of an insolvency practitioner.
If a CVA is the right choice for your business, our insolvency practitioners will help you draft a proposal for your creditors.
We’ll guide you, making sure that your proposal is attractive to creditors and affordable for you.
After your CVA has been officially submitted, your creditors are given three weeks’ notice before holding a vote on whether to accept it.
You’ll need the backing of 75% of your voting creditors – by value – in order for the proposal to go ahead.
At the same time, a shareholders’ meeting is held. You’ll need at least 50% of them to vote in favour.
We’ll submit a meeting report detailing how everyone voted to the court and your creditors. This lets everyone know that the CVA is now in effect.
After your CVA has successfully been approved, your company must begin its outlined monthly contributions. You contribute to a trust account, and we divide this between your creditors.
Failing to make these payments could force you into liquidation. Your company will also need to keep up with any new ongoing debts following the CVA; otherwise, your new creditors may take action against the company.
So long as you meet these needs, your company will be safe from closure, and you’ll be able to operate as normal.
Once you’ve made regular payments for the agreed-upon length of time, your CVA comes to a close, and your debts are resolved.
In some cases, this can result in some of your debts being written off entirely.
Will I Be Able to Get a CVA?
Company Voluntary Arrangements are an attractive solution to company debt, allowing insolvent businesses to resolve financial issues and get back on their feet. That being said, they do require the backing of your company’s creditors.
So how do you know if your business will be able to get a CVA?
To ensure the best chance of success, you’ll need to demonstrate a few things in your proposal:
- Your company is viable with a steady revenue stream
- A CVA will provide your creditors with a better return than a liquidation
- You will be able to keep up with your CVA payments
Essentially, you need to convince creditors that they’ll be able to get more money back in the long run. Otherwise, they’ll press for a liquidation to get a quick return.
Our team will help you to sculpt a plan that is both attractive to creditors and workable for you.
What Are the Alternatives to a CVA?
Sometimes, a CVA may not be an appropriate choice for an insolvent company; the business may not be stable enough, or creditors might be uncooperative.
However, it’s important that you take action when your business is insolvent. Failing to do so can result in misfeasance and wrongful trading charges, leaving you personally responsible for company debts.
Fortunately, there are a few other corporate insolvency solutions to consider.
If you haven’t been accepted for a CVA – but still think your company is viable enough to make a successful turnaround – you can consider entering administration.
The procedure hands control of the company over to an administrator, who seeks to achieve one of three outcomes:
- Save the business as a going concern
- Achieve a better result for creditors than a liquidation
- Realise assets to make a return to secured or preferential creditors
The administrator will seek to save the company, where possible, before defaulting to one of the other options. It doesn’t offer any guarantees, but the breathing space and fresh perspective administration provides can give businesses a fighting chance.
If your business is beyond rescue, it’s worth considering a Creditors’ Voluntary Liquidation (CVL).
A CVL is the most common form of company closure in the UK, offering a range of benefits:
- Stops pressure from creditors in as little as 14 days
- Protects you from misfeasance and wrongful trading charges
- Directors can claim redundancy
- Cost of procedure usually covered by liquidation proceeds
Control of the company is handed over to a liquidator, who then sells the company’s assets to help repay creditors. Any remaining debts are then written off. The company is safely closed, allowing you to move on to your next venture.
Speak to an Expert
If your business is struggling with debts it cannot repay, you should speak to an insolvency practitioner as soon as possible.
Early intervention keeps your options open and protects you from any unwanted legal or financial fallout down the line. Our experts can assess your situation and guide you towards the best solution for you.
Get in touch today to book a free, no-obligation consultation.
FAQs
This depends on your arrangement, but it usually takes around 3-5 years.
A CVA can be entered into fairly quickly. From the appointment of the insolvency practitioner, to the successful creditor vote, the process takes around 8 weeks.
Fees are deducted from the monthly contributions made as part of the CVA. This means you won’t have to make any additional payments to us on top of your agreed debt repayments.
There are no fixed fees for a CVA – these vary based on the size of the business and its debts. Typically, they range from £3000 – £10,000.
No: the process must be overseen by a licenced insolvency practitioner.
Unlike administration, a CVA doesn’t have to be publicly advertised, helping avoid any reputational damage.
If you don’t meet the payments outlined in your CVA, it will fail.
The terms of the CVA will no longer bind the remaining outstanding debt, meaning it can accrue interest again. If your company cannot pay these remaining debts, creditors will likely pursue the liquidation of your company.
If you’re struggling to make your payments, inform our team as soon as you can. When tackled early, it’s possible to work out a variation in the CVA, renegotiating the terms of your payment plan. Again, this will need the approval of 75% of your creditors.
