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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. At Wilson Field, we don’t charge an upfront fee for CVAs. 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, there are no upfront costs for the arrangement, 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.