CVA - FAQ's |
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Who can
propose a CVA?
What information is required for a CVA to be considered?
How
can you tell if a CVA is viable?
How
does the voting work?
How will
the bank be affected?
How
will the H M Revenue and Customs be affected?
What
happens if the company’s circumstances
change and amendments need to be made to the
terms of the CVA?
Who can
propose a CVA?
The directors of the company are usually the main
instigators of a CVA.
What information is required for a CVA to be considered?
The directors would have to provide a general history of the company, identify what went wrong and indicate how this situation is going to change.
To allow the preparation of cash flow and profit and loss forecasts detailed financial information must be provided.
The Insolvency Practitioner should be informed of any history of insolvency in respect of the directors and any legal action commenced in relation to the company.
How can you tell
if a CVA is viable?
For a CVA to work, the following are essential:
the company must return to profitability;
the reasons for the company's problems must be identified and rectified;
the acceptance of the change must be adopted by management;
capital injections could be proposed and these would have to be obtained;
all VAT and Tax returns must be submitted; and
the level of the CVA contributions together with the future liabilities that will be incurred following the approval of the CVA must be affordable.
How does the voting
work?
Of the total value of votes received from creditors either in person or by proxy 75% must approve the CVA or it will be rejected.
How would the bank
be affected?
The bank is usually a secured creditor and would therefore not be legally bound by the CVA. However their co-operation would be required, as the majority of companies rely on having the use of an overdraft facility.
The bank would usually prefer that the overdraft is reduced over time.
How will H M Revenue and Customs be affected?
H M Revenue and Customs (formerly Inland
Revenue and H M Customs and Excise) have a specialised
centralised department who consider all CVA proposals.
We ensure that their usual standard conditions
are included in the CVA proposal.
If
Tax and VAT returns are not up to date and/or
there has been a breakdown in the relationship
between the company and H M Revenue and Customs,
the proposal will have a significantly lower chance
of being accepted.
What happens if the
company’s circumstances change and amendments
need to be made to the terms of the CVA?
With the acceptance of the creditors a
variation can be made to the terms of the proposal
at any time.
The same voting applies as for the acceptance of the Arrangement i.e. of the total value of voting creditors, 75% must accept the variation.
We understand that
you may require guidance and encouragement to help
you through these difficult times.
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