Company Voluntary Arrangements (CVA) are frequently sought by Directors who feel their company has a viable future and are prepared to work hard to keep it alive.

What is a Company Voluntary Arrangement?

The government introduced the Company Voluntary Arrangement (CVA) in 1986. Its intention – offering an alternative procedure to companies that would otherwise face compulsory liquidation or voluntary liquidation. The use of a CVA can be a rescue device following a period of administration, or for companies looking for a way to repay creditor debt whilst continuing to trade.

The procedure is available to any company registered in England or Wales. It enables the company to reduce its debt levels, improving cash flow by coming to an arrangement with creditors. The company typically makes only one agreed, affordable monthly payment to the appointed insolvency practitioner. They act as supervisor distributing the money on a pro-rata basis amongst the creditors included. The amount paid over the agreed term, up to five years, can vary, from repayment in full to a percentage of the debt.

CVAs can be an excellent way to solve serious debt problems and, in sixty months or less, the company can be legally debt-free. There will be a write-off of any outstanding debt once the arrangement is successfully completed.

We will work with you to understand your company’s debt levels; we will then establish a level of debt you can afford to pay back. This will be based on affordability, and we will help you look at your cash flow to work this out.

Why use a CVA?

A Company Voluntary Arrangement is the ideal rescue device for an insolvent company that has accumulated debt with creditors. It helps to find a way to repay its liabilities and continue trading. Companies usually seek to enter a CVA to avoid liquidation or to remove creditor pressure.

Read more about creditor pressure

CVA costing

A Company Voluntary Arrangement needs a licensed insolvency practitioner to help arrange and maintain the formal agreement with your creditors. Our fees are automatically deducted from your monthly repayments to creditors and are not an additional cost.

If creditors are currently demanding repayments from you regardless of whether you can afford it, often the monthly repayments will be less than the amount creditors are asking for.
There is no set cost for a CVA, as a lot depends on the company’s circumstances. We will assess your situation and discuss costings with your company director before proceeding.

Read more about how CVA fees are charged

When will a CVA be most effective?

• Your company is facing liquidation but would prefer not to go down that road.
• You want to make sure suppliers do not lose monies owing to them.
• Your company has the potential to be profitable with the removal of creditor pressure.
• Your company has bad debts or late payers affecting its short-term financial health.
• Your company has a viable business model and a full order book. It is being held back by short-term cash flow problems.
• Your company requires restructuring to be successful.
• You have been unable to negotiate repayment plans with creditors.
• You want to retain day-to-day control of the company.

What are the advantages of a CVA?

A CVA has many benefits, including but not limited to:

• Allows the company to continue trading

  CVAs allow the company to continue trading while repaying its debts in affordable instalments over a period of up to five years. Staying open continues the brand, preserves jobs, and helps maintain a goodwill and positive reputation with its customers.

• Helps with cash flow

  Repaying the company’s debts over a longer period and in affordable instalments helps improve its cash flow.

• In creditors’ best interest

  Creditors may prefer the company enter a CVA as they’re more likely to receive recovered funds than through other insolvency options.

• Directors retain control of the business

  The insolvency practitioner doesn’t partake in the company’s day-to-day running, so directors maintain control of the company throughout the arrangement, making the process an appealing way for directors to continue operations while managing the debts.

• Creditor pressure is paused, giving the company time for turnaround

  Once the arrangement comes into force, the company is protected from the pursuit of legal action like CCJs or winding-up petitions and unsecured creditor pressure related to the included debts.
  Dealing with creditor pressure

• Remaining unsecured debt is written off at the end of the CVA process

  Because the figure agreed in the monthly repayments is based on the company’s position to repay its debt and has been approved by creditors, any remaining unsecured debt included in the arrangement is written off. This means that creditors may take no further legal action once the CVA concludes, even though they may not have received the full amount that they were owed.

• Breathing space and increasing the chance of survival

  By providing breathing space, the company can implement measures to increase the company’s revenue and restructure its operations, a CVA can increase the likelihood that the company will survive and return to a profitable state, benefitting the employees, creditors, and shareholders.

• Interest rates frozen

  Any debts submitted as part of the CVA will have their interest frozen for the arrangement’s duration.

• Shows a willingness to repay

  Entering a CVA demonstrates that the company is committed to repaying what it owes and finding a solution to its financial issues, and in doing so, helping maintain a good reputation.

• Less intrusive, expensive, and time consuming than administration or liquidation

  While administration and liquidation can negatively impact the company’s public image, CVAs can avoid this as they allow the company to continue trading. The process can also be less time consuming and expensive than those other insolvency procedures.

• Director conduct is not investigated

  As the process doesn’t involve liquidating the company, director conduct in the time leading up to the period of insolvency is not investigated.

• Potential for flexibility

  CVAs can be more flexible than other insolvency arrangements. So, if your company’s situation changes and it’s unable to meet its repayments, the insolvency practitioner can propose a variation to creditors. Repayments could be reduced for a period, or creditors may permit a payment holiday.

• Tailored to your company’s affordability

  Once the IP has assessed your company’s financial situation, the monthly repayments are tailored to what it can afford.How CVA fees are charged

What are the disadvantages of a CVA?

The CVA process does also have drawbacks to consider when deciding if it’s right for your company:

• Company credit rating is affected

  A CVA negatively impacts a company’s credit rating, although insolvency means it’s probably already affected. During the first few years, you may have to pay for goods on a proforma basis as it will be harder to get credit. Once the CVA is over, the company can start to rebuild its credit rating.

• Legally obliged to adhere to the scheme

  While there is an element of flexibility in amendments to the agreement (if accepted by creditors), the CVA terms will be quite strict in what it expects of the company.

• A CVA’s failure can lead to further insolvency measures

  Failing to keep to the CVA’s terms can lead to further insolvency procedures.
  What can happen if a CVA fails?

• Creditors need to approve the proposed arrangement

  Creditors need to be convinced that a CVA would provide them a better return than if the company were to close. They can still push for liquidation if they’re not convinced.

Our Company Voluntary Arrangement process

A Company Voluntary Arrangement lasts around five years, give or take, with one monthly sum being taken from the company bank account for us to distribute amongst your unsecured creditors. Below is a step-by-step flow of the procedure.

Discuss options with an insolvency consultant

The first step is to investigate your options with a professional insolvency consultant at Wilson Field. We will discuss your company’s current position, explaining the various options available, which will include voluntary liquidation, CVA or pre-pack liquidation. We will work with you to find the best solution.

Face to face appointment with a consultant

The next step is a face-to-face meeting. One of our insolvency specialists can meet you at your home, your place of work or a convenient location of your choosing. At the meeting, we will discuss your options in further detail and more depth. This initial consultation and advice are entirely free of charge.

Gathering information

Once directors agree a CVA is the best solution to your company’s financial difficulties, Wilson Field needs to be formally instructed to work on your behalf. Once instructed, our CVA team will work with you collating the relevant information necessary for drafting a proposal.

Drafting the proposal

The proposal details a number of things including:

 

• The history of how the company got into financial difficulty and how it will avoid future problems.
• How much a company can afford to pay each month and how much will be paid to creditors.
• Information regarding the company’s current financial position.

The directors review the proposal

After drafting, the directors can discuss and review the proposal. They can and should make amendments where applicable until it is acceptable. A copy is sent to creditors and shareholders once it is signed off by the director.

CVA Moratorium

If creditor pressure becomes a worry during CVA set-up, an application may be made to the court for an official CVA Moratorium. Once in place, your company’s creditors will no longer be able to take any legal action. This effectively acts as breathing space for the insolvency practitioner, allowing them to hold a creditors’ meeting for them to vote on the proposal. Formal CVA Moratoriums are useful but their use is rare. This is due to the risks involved for the insolvency practitioner and their difficult implementation in practice.

Informal agreement with unsecured creditors

As an alternative to CVA Moratorium and to avoid legal action by the creditors against the company before the CVA is agreed, we favour informal agreements between the debtor company and its major creditors. After instruction, our first task is to contact all your unsecured creditors advising them about the CVA plan. We inform them that the company has financial difficulties. As such, the company cannot afford to pay its historical liabilities.

 

We explain that the company is exploring the possibility of a CVA and in the meantime, the company needs to continue trading. Inform them that you will still need to buy products or services from them but will do so on a “cash on delivery” or “pro forma basis”. We then ask them for their help in giving you some breathing space to allow us to prepare a proposal.

You can continue to trade with your creditors on a cash basis. This will prove the company is a going concern which will be meeting obligations. The likelihood of accepting a CVA will be stronger if creditors have some faith in the company to keep up monthly payments.

The creditors meeting

By law, creditors and shareholders have to be given a minimum of 14 days’ notice of a creditor’s meeting.

 

A company director should attend, but it is not obligatory. Creditors have the opportunity to vote in favour or against your CVA proposal. They can vote whilst in attendance at the meeting, or by proxy. Voting by proxy means they can vote via a third party, by post or e-mail. At least 75% by value of voting Creditors need to vote in favour of your CVA proposal for approval.

In some cases, the proposal may not be acceptable to creditors and a revisited proposal incorporating modifications may have to be resubmitted for their approval.

In addition, there will be a second creditors vote, taking place without ‘connected’ creditors present. For the proceeding of the CVA, this requires at least 50% of voting creditors to be in favour. Connected creditors are usually individuals, such as company directors or employees, who provide unsecured finance to the company.

Your CVA will begin

Once your company’s arrangement is in place, the monthly payments already in the agreement will be made. The collection of money is monthly, distributed amongst your creditors on a pro-rata basis, normally annually. The agreement is legally binding, and its terms bind your creditors and your company for its duration. Creditors will not be able to legally pursue you as long as your company makes the regular repayments each month.

End of your CVA

The CVA finishes at the end of the agreed term after final payment has been made and all proposal conditions have been adhered to. Most CVAs are on five-year terms meaning they conclude after the 60th monthly payment. At that point, any outstanding unsecured debt will be written off, and your company will be legally debt-free.

In summary

A Company Voluntary Arrangement (CVA) is an excellent way to get your company back on track if it has suffered a debt but ultimately has a workable business model. It gives it time to recover and stabilise its finances, allows directors to remain at the helm of the company, and ultimately writes off unaffordable company debt which would otherwise have been pursued by your unsecured creditors. However, there are drawbacks to consider before deciding if a CVA is the right procedure for your business and its particular set of circumstances.

How we can help

If your business is in trouble, but you believe it could succeed without any intense creditor pressure, a Company Voluntary Arrangement could be the right option. If you think your company has what it takes and you’re willing to do what it takes to make the arrangement work, we can help talk you through the processes involved. Alternatively, if it isn’t the best option for your company, we can advise you on the alternative solutions available.

If a CVA is not appropriate

Sometimes, your company debt can be of such a level that a CVA won’t be appropriate, or it can’t continue to trade in its current form. The company may need restructuring or closing completely. In these scenarios, we can offer options to restart the company via administration or close the company through liquidation.

See more company recovery options

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.

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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