Company Voluntary Arrangements (CVA) are a useful way of clearing your business debts with one manageable regular payment.
They are debt management plans to help businesses pay back creditors over a defined period – usually over 3-5 years.
Our team at Future Strategy has a wealth of experience in Company Voluntary Arrangements (CVA) and can help structure a payment plan that will leave you debt-free.
If you believe your business can be financially viable again but need help clearing the debt and paying creditors, Future Strategy can help. Our experts can design a CVA that works for you and your creditors, often reducing what you owe into a manageable sum.
We can help create a CVA for you that:
- Keeps you trading and puts you firmly back in control of your business.
- Deals with the stressful process of managing creditors, with an outcome that suits everyone.
- Avoids complicated legal wrangling or the threat of closure or liquidation.
Get in touch today to find out if a CVA could be the right choice for you and your business.
So why choose a Company Voluntary Arrangement (CVA)?
A CVA can be implemented when a business is in trouble but shows signs of being financially viable and could still be profitable in the future.
The arrangement means all of the company’s debt can be transported into one manageable monthly payment, so it can carry on trading without having to worry about the threat of liquidation or winding-up orders, petitions, or liquidations being threatened.
The conditions of a CVA (known as the CVA proposal) are a binding contract for all parties, including creditors, and usually provide lower monthly outgoings for the business while eliminating the pressure of any legal action while the CVA is active.
The proposal will also outline how much of the debt creditors will be paid back during that period.
A CVA can be an effective method of solving severe debt problems, and in five years or less, your company could be legally debt-free. Once the CVA is completed, all of the debt should be written off.
Our team will work with you from the start to understand your debt levels and will then put a plan in place for the CVA. Once this is finalised, we will put the CVA into action and deal with creditors to whom you owe money.
Benefits of a Company Voluntary Arrangement (CVA)
While the CVA is being prepared, pressure from creditors and HMRC is relieved. This first step taken by us can ease huge stress on you and your business. Moreover, as long as the agreed terms of the CVA are adhered to, legal action cannot be taken by creditors while it is active.
The CVA structure will mean creditor payments will be turned into a single monthly payment that you can plan for and manage – while not losing control of the company. In addition, these reduced payments often mean that cash flow is improved.
If you are worried about reputational damage, as there is no need to legally advertise a CVA, the information will not enter the public domain.
Crucially, creating a CVA means it is likely to stop a winding-up petition from becoming successful, forcing you into compulsory liquidation. However, the CVA would need to be proposed within seven days of the winding-up petition.
The CVA deal is mutually beneficial for directors and creditors, who enjoy repayment of 20 to 100% of the debt reliably.
Is your company eligible for a CVA?
- Your business must be insolvent (i.e., you’re unable to pay debts as and when they are due).
- Any projected cash flow forecasts must show that your company will be able to repay the agreed amounts to creditors.
- Company directors must be confident the business has a viable future and also a reasonable prospect of recovery.
What is contained in a CVA proposal?
By law, the proposal is required to meet the guidelines of The Insolvency Rules 1986 – Rule 1.3. Typically, a CVA will contain information about the business and the appointed Insolvency Practitioner (names, addresses, and contact details). It will also feature in-depth information about its affairs, including employee information, profits, and significant transactions or events.
After this introduction will be the main proposals of the CVA, followed by details about the company’s creditors and debts. Documentation will also need to be prepared to supplement the CVA.
How long does a company voluntary arrangement take to complete?
It takes an average of six to eight weeks to complete. Usually, around one month will pass between the appointment of an Insolvency Practitioner and posting the proposal to creditors; the creditors’ meeting should be held approximately three weeks after that. It should also be noted that contributions to the trust account will be required for up to five years, depending on agreement conditions.
When can you use a CVA?
An arrangement must be proposed before a winding-up petition has been granted against your business.
You must act quickly if you have already been served a winding-up order or if your creditors are threatening one, but the good news is that you still have time to set up a CVA and save your business.
Once a winding-up order is granted, compulsory liquidation will start, and at this point, it’s unlikely the company will recover.
It is possible that if your business enters into administration, the administrator or liquidator will propose a CVA as a way to bring about a turnaround.
This is likely to apply to businesses with minimal assets, as they are likely to believe that a CVA would be more beneficial to creditors. Likewise, a business in a CVA can also enter into liquidation.
How much does a company voluntary arrangement cost?
The average cost of CVA is somewhere between £5,000 and £10,000, while the creditors ultimately decide the cost of supervising the arrangement.
The main expense that needs covering will be the instruction of a licensed Insolvency Practitioner to formulate and present the CVA proposal. Known as the nominee’s fee, it will vary depending on how much work is involved, the particulars of your case, and your choice of insolvency firm.
What are the steps involved with a CVA?
The process of a CVA is described below. Remember, this is a complex process, and it is essential that you appoint advisers from the start, such as Future Strategy, who can manage the process for you throughout.
We communicate regularly and transparently, giving you peace of mind.
Initial assessment. The company directors will contact an Insolvency Specialist or Practitioner, who will decide whether a CVA is the best course of action for your business and its creditors.
Appointing an Insolvency Practitioner. Once an Insolvency Practitioner has been appointed and a CVA recommended, a draft proposal will be put together for creditors.
Company directors will consider the proposal. The directors will read the draft proposal before any required revisions are made. The Insolvency Practitioner must believe the CVA has a good chance of success to nominate the process. If directors feel the company will be unable to keep up with payments, a CVL (Creditors’ Voluntary Liquidation) will likely be recommended instead.
CVA is filed with the court. The final draft of the CVL is filed and issued with a legal originating number before signed copies of the proposal are sent to creditors.
Meeting scheduled with creditors and shareholders. The Insolvency Practitioner calls a meeting of all the company’s unsecured creditors. During the meeting, the CVA will be proposed to creditors by the Insolvency Practitioner, and they are allowed to request amendments to the proposal. A meeting of the company’s shareholders will take place at the same time.
Proposal votes are counted. During the creditors’ meeting, there will be a vote on whether or not the proposal should be approved.
This will happen if creditors are responsible for 75% or more of the company’s unsecured debt vote in favour of the CVA (including any proposed amendments). In addition, at least half of the shareholders must also vote in favour of the proposal to be approved.
Overview report is issued. If the CVA is approved, within the following four days, the Insolvency Practitioner is required to issue a report detailing what happened during the meetings, who was present, and how each party voted. This information will be made available to all creditors and the Court.
Any legal action against your business is stopped. Once the CVA is approved, any legal action against the company will be frozen, and no further action will be taken unless the CVA is defaulted on.
A trust account is arranged. Once the CVA is in effect, your business will be expected to make the projected contributions to a trust account. A CVA is a legally binding contract, so if the terms are breached, the Insolvency Practitioner will almost certainly have to petition to wind the company up through compulsory liquidation.