If your company is struggling to pay its debts as they fall due, it may be time to start looking at ways to tackle the issue. Many company owners struggle to understand when it’s the best time to get help. A Company Voluntary Arrangement (CVA) may be an appropriate procedure to help your company manage its repayments whilst providing legal protection.
Understanding if your company is insolvent or at risk of being so, will allow you to understand what options are available to you. Our licensed Insolvency Practitioners (IP) specialise in business turnaround, can help you identify if your company is insolvent and recommend appropriate action to help achieve your desired outcome.
The CVA application process
If you believe your company is insolvent or at risk of becoming insolvent, you should get professional advice as soon as possible. It’s important you don’t trade whilst insolvent, and if you believe the company still has a future and can prove it, you should contact an IP to apply for a CVA. The sooner you take action; the more options will be open to rescue the company.
Before committing to the arrangement, you should be aware of the advantages and implications which the process carries. Applying for a CVA has a number of stages and requirements, and will need input from directors and creditors before being actioned.
Advice and assessment
After you’ve spoken with an IP at Wilson Field, and decided that a CVA would be more beneficial or suitable for your company than voluntary liquidation, or administration, the application process can begin in earnest.
Before deciding whether a CVA would be the best course of action, the IP will need several documents and records from your company. These can include the following:
- Cash flow forecasts
- Proof of the amount of debt with suppliers
- Details of the company’s standing with HMRC
- The total amount of debt owed
These documents and records will be used to assess your company’s position and whether a CVA will be suitable. Because CVAs are proposed on an individual basis, what works best for one company won’t necessarily work best for another.
Cash flow, in particular, is an important aspect when deciding whether a CVA is appropriate. Before a CVA is approved, the company must prove to the IP that there will be enough capital to keep up the repayments.
Contact the creditors
After you apply for a CVA and the proposal has been finalised, you’ll need to contact all the company’s secured creditors. These are lenders or suppliers with fixed or floating charges over business assets, such as banks, money lenders and invoice factoring companies. You should also contact those with fixed charges over company assets, such as premises, vehicles, machinery and equipment. It is important to gain the support of the secured creditors, who are not affected by the CVA.
At this point, the proposal will be lodged at a court and distributed to all unsecured creditors; these include your contractors, suppliers, customers and HMRC. A creditors meeting will also be called, at which the creditors will vote on whether or not to accept the proposal.
There will be a minimum period of 14 days notice for the creditors meeting, in which they can decide to reject or approve the CVA.
Hold a CVA creditors meeting
A creditors meeting chaired by the IP is held, giving at least 14 days’ notice (plus time to give allowances for postage). Here, they will vote to either accept or reject the proposed CVA. The meeting is usually held virtually.
In recent years, creditors tend to send their vote in via proxy and attend the meeting if they wish to question elements of the CVA.
The creditors accept or reject the proposal
If 75% (of the value of debt) of the creditors accept the proposal, it will go to a second vote.
This second vote is held, discounting the votes of creditors who are connected to the Company, such as directors or companies with common shareholders. At least 50% (of the value of the debt) of creditors must agree to the CVA proposal for it to pass.
If the creditors are not willing to accept the arrangement’s terms, the CVA is rejected, and you’ll have to explore other options.
Creditors may vote to accept the proposal but with modifications. They can make suggestions to how the proposal should be changed to make it more acceptable to them, and that their vote cannot be counted as a vote to accept unless it is agreed that their suggested changes are incorporated. The IP can negotiate with the creditor on modifications if they appear not to be workable.
The CVA comes into effect
Once the CVA is approved, your IP will become the supervisor and payments will be made monthly. The collected funds are then distributed among the creditors. As a CVA is a legally binding agreement, it’s of the utmost importance that you keep up with the payments. Doing so means creditors cannot pressure you, and all company debts are frozen.
Once you have completed the payment plan, all outstanding debts are written off, and the company can continue trading.
If you find yourself struggling to keep up with the payments, you should contact your IP immediately. Otherwise, the CVA could fail, and you may have to look at liquidation or administration.
If a company becomes insolvent, it can apply for a CVA through a licensed IP to pay off its debts through monthly repayments. After analysing your company’s circumstances, if the IP feels a CVA would be suitable, and all company directors agree, the IP will assist you with drafting a proposal. The company’s unsecured creditors will review the proposal and attend a creditor meeting. The CVA requires 75% of creditors by value to accept the CVA for it to be approved, after which, a second vote is held, discounting any votes received from connected creditors and requires at least 50% of creditors to vote for it. Once the CVA is approved, the company will pay back the debt in monthly repayments over several years.
How we can help
If your company is experiencing financial difficulty, get in touch with our advisors for free, impartial advice with no obligation. We can assess your situation and advise you on the best way forward. Whether you choose to apply for a CVA, with no upfront fees, or if another procedure would be more beneficial, we can guide you through the process from start to finish.