What if a Company Voluntary Arrangement (CVA) is rejected?
A Company Voluntary Arrangement (CVA) is suitable for companies who require a legally binding payment plan. When in place, it allows a company to repay its debts in an affordable manner helping secure its future. The arrangement requires approval from 75% of creditors by value, and if they don’t feel they would get an adequate return, they can vote it down. So, what if your CVA proposal is rejected?
More information on Company Voluntary Arrangements
Why would a CVA be rejected?
Although many CVAs are approved, creditors may want more of a return than what the CVA offers. They could dislike some of the CVA’s terms; they might have an issue with debt being written off, or be unconvinced that the company will adhere to the repayment plan; as they may have defaulted on informal repayment plans in the past. Failing to convince creditors the CVA is the best course of action would result in it being rejected.
Even if a large number of the creditors agree to the CVA, if the proposal doesn’t receive approval from 75% of creditors by value, it will be rejected.
Advantages and disadvantages of a CVA
What are my options if my CVA is rejected?
Although the rejection of a CVA proposal isn’t the desired outcome, it doesn’t automatically mean the company will cease to be. However, it does mean the company will have to pursue further insolvency options. If this happens, which route you take will ultimately depend on the outcome you desire, and what returns the best result to creditors.
Company recovery
CVAs aren’t always suitable for a company, and this could be for several reasons: Either the debt may be too severe for the CVA to be viable, or the business could benefit from more extensive restructuring. Whatever the situation, you can explore alternative arrangements to allow the company to recover.
Company administration
Administration is an option for companies with lots of assets that can be used to raise funds to enable a period of trade to either try and resolve the company’s issues or sell the business or assets. In an administration, a licensed insolvency practitioner (IP) will take control of the company, and your responsibilities as a director will cease.
More information on administration
Pre-pack administration
Pre-pack administration follows the same concept as company administration, but pre-packing the sale of assets signifies that you wish to repurchase your assets to restart the business as a new company. Doing this is legal, as long as the purchase is fair and transparent, and your offer represents the best outcome to creditors.
More on pre-pack administration
Company closure
Sometimes a company’s debt or pressure from its creditors can be so severe that continuing isn’t feasible. In which case, the company may be better off closing than trying to carry on trading.
Creditor’s Voluntary Liquidation (CVL)
Creditors Voluntary Liquidation (CVL) is for directors who don’t wish to take their company further and would rather wind it up and close it. An IP will realise and liquidate the assets, with the company debt put to bed with the subsequent dissolution. Employees will be made redundant during this procedure. Although directors are allowed to start a new company afterwards, there are limits on the use of trading styles. The liquidator is obliged to conduct a report on the conduct of the directors leading up to the liquidation.
More information on Creditors Voluntary Liquidation
Pre-pack liquidation
If your core business has the potential to be profitable without its burdensome debts, you can explore a pre-pack liquidation. Similar to a pre-pack administration, the assets are sold to a new company – ‘newco’ starts trading, and the old company is liquidated. Assets, premises and staff can be transferred to the new company, which can continue without the old company’s debts. Creditors may see more of a return than if the company went into compulsory liquidation.
More information on pre-pack liquidation
In summary
Although a CVA is a viable course of action for many companies looking to repay their liabilities at an affordable rate, it requires approval from creditors before it can go through. Creditors can reject a CVA if they don’t agree with the terms, aren’t convinced you’ll be able to complete the payments, or if a high enough percentage of creditors don’t approve it. Once a CVA’s rejected, the company should pursue other insolvency procedures to avoid a winding-up petition and compulsory liquidation. Avenues open to you depend on your circumstances; these could include restructuring through company administration, pre-pack administration or voluntarily winding-up through a CVL.
How we can help
If your company is insolvent and is considering a CVA, contact us as soon as possible. Our team can offer you advice on your current situation, and help you understand the CVA application process. If we feel a CVA would be appropriate for your company and provide the best return, we can put together a proposal for your creditors. If a CVA is rejected or has failed we can advise you which alternative insolvency procedures would be most beneficial.
Case Studies
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
High End Fashion Retailer
Kelly Burton • Retail • Pre-Pack Administration
A high-end independent fashion retailer, operating from a well-established location found itself experiencing severe financial difficulties, following the closure of all retail stores during the two nationwide lockdowns caused by the Covid 19 pandemic.
The retailer did not have a sizeable online practice when the pandemic forced the closure of its flagship store, and sales ceased overnight.
In addition, the retailer had already committed to deliveries of the next season’s stock, which resulted in large balances falling due to suppliers, whilst the stock remained unsold.
Kelly Burton, director and insolvency practitioner at Wilson Field, said:
“Unfortunately due to the pandemic, all of the retail stores had to shut as the country went into nationwide lockdown. Without a solid online presence, the flagship store had its sales effectively stop overnight.
We were pleased to arrange a pre-arranged sale of the business and its assets, which meant that nobody lost their job.”
The Directors approached Wilson Field to explore the option of a pre-packaged administration. Following an extensive marketing campaign, the business and assets were sold to an associated company, and all jobs were saved.
Free Consultation
Request a free confidential telephone consultation from 9am - 8pm, 7 days a week.
