Company Voluntary Arrangement (CVA) or Creditors Voluntary Liquidation (CVL)?
If a company gets into financial difficulty and becomes insolvent, the directors can apply for a Company Voluntary Arrangement (CVA), through an insolvency practitioner (IP) to continue trading. Unfortunately, it might not be possible to rescue the company, or its recovery looks increasingly unlikely. In this instance, the IP may recommend putting the company through Creditors Voluntary Liquidation (CVL).
It helps to know what your circumstances are before speaking with your IP and deciding on a course of action.
Company Voluntary Arrangements
Company Voluntary Arrangements (CVAs) are used to rescue insolvent companies, allowing them to keep trading while repaying debts to their creditors.
Directors appoint a licensed insolvency practitioner (IP), who creates a proposal to present to the creditors. Once approved, a CVA requires monthly payments towards the debt, which the company must maintain for the arrangement to succeed.
CVAs will have an impact on a company’s credit rating, and if you’re unable to adhere to the payment schedule, the CVA can fail, and you may have to proceed with liquidation.
More information about CVAsCreditors Voluntary Liquidation
Liquidation is a word that strikes fear in many directors. Often considered the last resort in cases of insolvency, liquidation involves an end to trading, closing the company and selling off assets. The company incurs no further debts; creditors will regain some of their investment, and staff are made redundant.
If a company is rejected for a CVA, or a CVA has failed, liquidation may be one of the only options left open to them. Creditors can also force a company into liquidation through a winding-up petition.
The voluntary liquidation process for insolvent companies is Creditors Voluntary Liquidation (CVL). During the process, the IP can investigate the company director(s) conduct before the company became insolvent. The IP can then suggest further action against the director if they find a reason to do so, which can lead to legal action and further ramifications.
More on Creditors Voluntary Liquidation (CVL)
CVAs or Liquidation, how do they work?
A CVA can be a useful procedure to relieve pressure from unsecured creditors and allow the company to survive. The arrangement consolidates all your company’s debt repayments into one monthly instalment. This payment goes to your IP, who then distributes it between your creditors. The directors stay in control of the company during the process, which usually lasts five years.
Whether your company is suitable for a CVA depends on its individual circumstances. We can discuss these with you before deciding the best course of action.
Liquidation has several variations for solvent and insolvent companies, each working slightly differently. All forms of liquidation end with the cessation of trading, staff being made redundant, and company assets sold. At the end, the company closes.
Creditors Voluntary Liquidation (CVL), for example, is a voluntary procedure for directors of insolvent companies. The process involves an IP taking control of the company and closing it in an orderly manner. Once the company closes, any remaining debt outside personal guarantees is written off, and the directors can walk away and start a new company should they choose to.
Directors can also be investigated to ensure they have acted in the company’s best interest; both before and during the insolvency. Evidence of wrongdoing can lead to prosecution and director disqualification by the Insolvency Service. If directors have any personal guarantees invested in company assets, they could even find themselves repaying company debts with their own funds.
Additionally, a creditor can force compulsory liquidation on a company through a winding-up petition. Unless stopped, these can force a company to close, giving the directors less control over the process.
When do they work best?
Both procedures have opposing outcomes, so your desired outcome for the company will influence which you choose.
CVAs are designed to rescue companies from the threat of closure. They work best for companies with a viable business structure, which could be profitable without its burdensome unsecured debts. Trading can continue for the arrangement’s duration, which helps reduce the debt and provide a sense of continuity for the company and its customer base. Existing debts have their interest rates frozen, and the IP deals with any creditors for the duration.
More advantages a CVA can offerCVLs are designed to close insolvent companies where the levels of debt make recovery unlikely or unrealistic. A CVL offers more control than if the company were put into compulsory liquidation. Once the insolvent company closes, the directors can move on, or start a new company if they wish to do so.
In summary
A Company Voluntary Arrangement, or CVA, and liquidation are both options for insolvent companies. CVAs are designed for companies who wish to continue trading while keeping the directors in control. They allow the company to write off unaffordable debt, and to pay creditors back. There are several liquidation avenues available depending on your company’s circumstances; Creditors Voluntary Liquidation (CVL) allows directors to liquidate the company if it’s unable to pay its debts, allowing directors to move on. Compulsory liquidation is the least desirable option, usually following a winding-up petition and forcing the company’s closure.
How we can help
If you’re considering applying for a CVA, or liquidation looks increasingly likely, you should speak to us as soon as possible. Our advisors can assess your circumstances, offer free, impartial advice with no obligation, and decide which course of action is best for your company.
Case Studies
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
Silcox Coach Company
Kelly Burton • Automotive • Company Voluntary Arrangement (CVA)
Pembrokeshire-based Silcox Coach Company, which operates school transport as well as local bus services, has been placed into administration today.
Despite attempts by administrators from Sheffield-based Wilson Field to secure a buyer with various interested parties, the 134-year-old company, which operated a fleet of 65 coaches and buses from its base in Pembroke Dock, has now ceased trading.
Insolvency practitioners Kelly Burton and Joanne Wright from Wilson Field Limited were appointed by shareholders after the company experienced financial difficulties and as a result all 92 staff jobs have been made redundant.
However, in the region of 50 staff have been re-employed by Edwards Coaches of Pontypridd who have been granted the local authority contracts previously operated by Silcox.
Kelly Burton, director and insolvency practitioner at Wilson Field said:
“Silcox Coaches was a fourth generation bus and coach operator and over the years provided various forms of transport services latterly focussing local authority community bus routes, school services, coach hire and coaching holidays.
“The company had an excellent reputation within the industry, the local community and its clients. Initially there were a number of parties interested in buying the business and assets and we had hoped to save all the jobs of the loyal workforce. Sadly, despite our best efforts none of these came to fruition. On the positive side, Edwards Coaches of Pontypridd have re-employed approximately 50 of those staff.”
As well as office accommodation in Pembroke Dock, Silcox also occupied a small travel office in Tenby and a large bus and coach compound near the offices in Pembroke Dock.
Edwards Coaches is the largest family owned coach company in Wales employing over 500 staff and operating 260 vehicles. It currently operates National Express coaches from Haverfordwest departing daily to Cardiff, Heathrow, Gatwick London and various other destinations plus transportation for over 8000 students to school or college each day from bus depots all over South Wales.
It also operates coach holidays for 80,000 passengers a year across the UK and Europe and operates The Edwards’ Red Dragon coach which is the official carrier of the Wales Rugby Team.
Travellers who have booked and pre-paid for a holiday with Silcox may be entitled to a refund and should contact either Bonded Coach Holidays (BCH) e-mail: bch@cpt-uk.org or The Confederation of Passenger Holidays UK (CPT) Tel: 020 7240 3131.
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