Company Voluntary Arrangement (CVA) FAQs
A Company Voluntary Arrangement (CVA) can be extremely useful for insolvent companies with more debt than they can afford to pay. In the right circumstances, they can help your company repay what you can afford and allow it to continue trading in the meantime.
Below are some frequently asked questions about CVAs. You can also contact us directly for free advice and professional help.
A Company Voluntary Arrangement (CVA) is a formal repayment arrangement between a limited company and its creditors. The arrangement is set up by a licensed insolvency practitioner (IP) and allows the indebted company to repay their creditors what they can afford.
More information about CVAs
Once the creditors have approved the CVA, the company makes a single monthly payment to a licensed IP, who then distributes it between the creditors. This process usually lasts five years, after which, the unpaid portion of the debt is written off. Repaying part of your company’s debts through a CVA means creditors may receive a higher return than via an administration or pursuing a winding-up order.
How a CVA can write off your company’s debts
CVAs can only be carried out by a licensed IP. If you feel your company would benefit from a CVA, you can speak to one of our initial advisors via telephone or live chat. We will assess your circumstances and advise which options would best suit your company.
Companies can continue trading while undergoing a CVA. This feature makes a CVA one of the most popular insolvency arrangements.
There is no legal requirement to inform your everyday customers that your company is undergoing a CVA. However, you may wish to make large contractors or customers with sizable orders aware. They may appreciate the honesty.
A CVA is best suited for insolvent companies with unsecured debts and business models that would be viable, and profitable without those debts.
There is no fixed cost for a CVA; each company’s circumstances vary. Once we’ve assessed your company’s situation, a monthly payment amount is decided, which will vary depending on how much you can afford. There will also be a Nominee Fee, which covers the work the IP will carry out, and is decided on a case-by-case basis. Finally, there are Supervisors Costs. These include the IP’s work after they are appointed. All these fees need to be approved by creditors before they can come into force.
More information on a CVA’s costs
A significant draw of a CVA is that the company can continue trading for the duration, usually without interruption to day-to-day activities. The director remains in control of the company for the duration, and at the end, all the remaining unpaid debts are written off.
There are considerations, however. Your company’s credit rating will be affected, and if you fail to maintain the repayments, you could face more serious insolvency action.
More on the benefits and considerations of a CVA
Once a Company Voluntary Arrangement (CVA) comes into force, all your creditors will be informed, and as such, all attempts at debt collection, including the sending of bailiffs to your business address, should stop.
More information on bailiffs
Money owed to HMRC can be included in a CVA.
If your debts are just to HMRC, you can also explore a Time to Pay Arrangement.
A CVA usually lasts five years. This timeframe can vary depending on the arrangement and how much the indebted company has agreed to repay.
As a CVA allows the company to continue trading, employees will remain employed by default, and the process doesn’t require staff to be made redundant. However, it is worth noting that changes may be needed to make the business profitable again, and this could include employment contracts or downsizing. The company’s circumstances will dictate whether redundancies are required. Either way, you should inform your employees that the company is undergoing a CVA.
While a CVA doesn’t make the director personally liable for the company’s debts, if you took out personal guarantees to secure business funding, those would remain during the CVA, with the creditors deciding whether to call on them.
If the CVA fails, the company director could be held liable for the personal guarantees.
Company directors will remain in control of the company for the duration of the arrangement. The IP oversees the arrangement and distributes your monthly payments to creditors without getting involved in the business’ day-to-day running.
The IP will hold a CVA creditors meeting (often virtually), where all the creditors included in the proposed arrangement are invited to vote on the proposal. If 75% off the creditors by the value of the debt approve the arrangement, it goes to a second vote. The second vote discounts the votes of creditors connected to the company. The second vote must be agreed to by at least 50% of the creditors by the value of the debt.
A CVA must be approved by 75% of creditors by the value of the debt. Any less and the CVA is rejected, meaning you’ll have to explore alternative insolvency arrangements.
If a CVA isn’t approved by more than 75% of the creditors by value, then it cannot be actioned. Creditors could do this for several reasons; they may be unconvinced the company can keep to the repayments or take issue with the debt being written off. Other insolvency solutions are available if creditors reject a CVA.
What to do if a CVA is rejected
A CVA can fail. It usually happens when the company in question can’t afford to keep up with its monthly repayments. If this happens, you can apply for an alternative insolvency arrangement to avoid facing a winding-up order.
What can happen if a CVA fails
A CVA must be carried out by a licensed insolvency practitioner (IP). Once you’ve spoken to one of our friendly initial advisors, they will assess your situation and decide whether a CVA would be a viable route for your business. You’ll then need to provide the IP with company documents detailing your cash flow, standing with the tax office and proof of the amount of debt. After the IP has assessed these documents, they will compose a proposal for your company.
More information on the CVA application process
How we can help
If your company is struggling to cover its liabilities but has a viable, potentially profitable business model, then a CVA could be the way forward. Speak to one of our friendly initial advisors for free, impartial advice with no obligation. We can assess your circumstances, guide you through the process, and decide whether a CVA would be the best option for your company.
Case Studies
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.
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.
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