There are no fixed costs to a Company Voluntary Arrangement, however, certain fees are incurred as the process is carried out by the insolvency practitioner (IP).
Here we discuss the costs applicable to the CVA process, how they are paid for, as well as the numerous benefits of the procedure.
How does a Company Voluntary Arrangement work?
Company Voluntary Arrangement (CVA) is a process whereby insolvent companies can set up a formal debt repayment arrangement with creditors.
The procedure is carried out by a licensed insolvency practitioner (IP), such as ourselves, who evaluates the company’s financial situation in order to ascertain the level of debt that the business can afford to repay. This is devised into a formal, legally binding repayment plan, meaning that the company is protected from further creditor action as long as they abide to the terms.
How much does a CVA cost?
While there is no fixed cost for a Company Voluntary Arrangement, appropriate fees depend on the individual circumstances surrounding the company. These may include the number of creditors, level of debt, and nature of the business and its assets.
While some insolvency practitioners may require an up-front fee for advice relating to CVA, here at Wilson Field, we require no such pre-payment.
Once company directors have discussed the options available to them via a cost-free consultation with one of our advisors, they may choose to appoint ourselves as the IP overseeing the process. It is at this point, when the arrangement commences, that appropriate costs will apply.
These costs, however, are not additional to your agreed monthly CVA payments, and are instead taken out of this sum before it is divided amongst creditors.
How are CVA fees charged?
During the process of a CVA, your company will make monthly payments to the IP, as agreed in the arrangement terms. It is from this single sum that both IP service payments, and creditor repayments, are taken. The practitioner will take the appropriate fee applicable to them before dividing the payment amongst company creditors.
What is included in the cost of a CVA?
The fees payable to the insolvency practitioner cover their work in a number of roles. The first of these is the nominee fee, which covers the IPs time negotiating the CVA with creditors. This is usually payable through the first few payments into a CVA, with the fee being agreed by creditors.
Once appointed, the IP becomes ‘supervisor’ of the CVA for its duration. To cover this role, a supervisor’s fee is calculated on a case-by-case basis. This must also be agreed with creditors, and is typically deducted from the company’s monthly payments.
This supervisor’s fee includes:
- The work in preparing a CVA annual report to creditors, as well as conducting six-monthly reviews.
- Reviewing the Company’s finances on an annual basis to assess whether contributions can be increased.
- The monitoring of the contributions, reviewing claims and distribution to creditors.
- General monitoring of the CVA’s progress relating to the proposal.
If the agreed monthly payments associated with a CVA are not adhered to, then the supervisor may take further action, pushing your company into compulsory liquidation.
What are the benefits of Company Voluntary Arrangement?
There are numerous benefits to the CVA process, making it a positive choice for companies looking to recover from the effects of unmanageable debt. These include:
Protection from creditors during the CVA process
As long as the company meets the monthly repayments agreed in the arrangement, creditors may take no further action towards the company.
Remaining 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 debt remaining at the end of the process is discharged. This means that creditors may take no further action once the process ends, even though they may not have received the full amount that they were initially owed before engagement.
Companies are able to trade as normal during a CVA
In contrast to alternative procedures such as liquidation, or pre-pack administration, companies entering a CVA may continue to trade while the process is carried out. This means that by the end of the process, with the absence of the monthly fee to creditors, the company has as good a chance as any to succeed.
Directors remain in control of the Company
During the CVA process, directors stay in day to day control of the Company. Therefore, decisions regarding trading strategy, employees and other terms of trading are not controlled by the Supervisor. However, some changes such as those regarding directorship or trading address would need to be shared with the supervisor.
Impact for Creditors
The CVA is lodged in court and, once approved, provides court protection from creditors’ legal action. However, the proposal would provide a greater return to Creditors than they would receive from alternatives such as Liquidation.
Company Voluntary Arrangement (CVA) is a process whereby insolvent companies can organise the monthly repayment of outstanding debt. The procedure is overseen by a licensed insolvency practitioner (IP), such as ourselves, and involves a legally-binding arrangement between a company and its creditors. During the process of CVA, as long as its requirements are adhered to, the company is protected from further creditor action.
While we do not require any upfront fee in carrying out a CVA, costs covering the IP’s services are deducted from the agreed monthly payment before it is distributed to creditors. This means that the monthly figure agreed during the drawing-up of the arrangement is the only payment required from the company.
How we can help
If your company is struggling with unmanageable levels of debt, and you would like to explore the possibility of CVA, we can help. It is essential to seek advice as soon as possible if your company is struggling. The free consultation provided by our experienced advisors will give you all the information necessary on the process, associated costs, and your company’s eligibility. To make the first step towards a positive future for your company, get in touch for free advice today.
Book a free telephone consultation with one of our initial advisers