What if a Company Voluntary Arrangement (CVA) is rejected?
A Company Voluntary Arrangement (CVA) is suitable for companies that require a legally binding payment plan. When in place, it allows a company to repay its debts in an affordable manner, helping to 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 a higher 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, the 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 to 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 that case, the company may be better off closing than trying to carry on trading.
Creditors’ 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’s remaining unsecured debts written off. 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 prepare 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
Oldham Precision
Kelly Burton • Construction & Engineering • Administration
Machining engineers Oldham Precision, has been bought out of administration, saving all 12 jobs.
The company’s principal activity was the subcontract manufacture of large volume batch precision machined components for clients across a wide range of industries including aerospace, paper converting, printing, coatings, electronics and valve construction.
Administrators Kelly Burton and Lisa Hogg from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 17 January after the company suffered cash flow problems.
Originally established in 1982, the company, based at Red Rose Business Park on Shaw Rd in Royton, offered subcontract engineering including CNC milling, grinding and turning.
After advice from Wilson Field, the business was sold to the existing management team as a going concern, saving all 12 employees’ jobs.
Kelly Burton, director in the Leeds office at Wilson Field said:
“Following discussions with the director, the business was sold as a going concern, safeguarding all 12 employees’ jobs and offering a better return for the company’s creditors than alternative options.
“The new company will be under the same management offering the same standards of service to its customers.”
Bay Cleaning Solutions
Kelly Burton • Other • Pre-Pack Administration
Administrators from Wilson Field have helped safeguard all 245 part time jobs at a Welsh commercial cleaning company after it was sold in a pre-pack deal to existing management.
Joint administrators Kelly Burton and Lisa Hogg from Yorkshire-based Wilson Field were called in by directors of Swansea-based Bay Cleaning Solutions on 19 October 2017.
The company, based at Walter Road in Swansea, had seen significant growth over the last two years but increased direct costs and administrative expenses had rendered the company loss-making.
Cash flow problems had resulted in the accumulation of substantial tax arrears and other debt and despite attempts to seek increased borrowing and arrange a payment plan with HMRC, the company was placed into administration.
MRB Cleaning Limited bought the company with all 245 part-time staff being transferred to the new company under TUPE.
In saving all the jobs, Wilson Field mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay-in-lieu of notice which equates to almost £137,500, offering a better return to creditors.
Kelly Burton, director and insolvency practitioner at Wilson Field, said:
“We are pleased that the sale of the company to MRB has resulted in all 245 jobs being secured and that the business will continue to trade. This is a substantial number of jobs saved. We determined that a pre-packaged sale would be in the best interests of creditors.”
BCS has over three decades of experience in the field of commercial cleaning with its core business relying on high footfall premises such as pubs, clubs and restaurants.
It also worked in areas including commercial cleaning, specialist cleaning, building maintenance, student accommodation, end of tenancy, hard floor and domestic cleaning.
Robert McArdle of David Currie & Co of Manchester dealt with asset disposal while Shulmans Solicitors of Leeds handled the legals.
Print On Solutions Limited
Kelly Burton • Service Agency • Administration
A Leeds print company has been bought out of administration, saving all 54 jobs.
Print On Solutions Limited was set up in 1999 and went from start-up business to the largest envelope overprinter in the UK with offices in Leeds and Bury, 12 litho presses and six digital presses.
Administrators Kelly Burton and Joanne Wright from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 11 April after the company, based in Century House, Holbeck, ran into financial difficulties following an ongoing dispute relating to a significant contract.
The directors took early advice and the business was sold to new company WEPOS Limited as a going concern saving all 54 employees’ jobs.
Kelly Burton from Wilson Field said:
“Following discussions with the directors, the business was sold to WEPOS Limited as a going concern, safeguarding all 54 employees’ jobs. The new company will offer the same service and standards and will operate under the same management team.”
In 2003 Print On expanded by moving to a 12,000 sq ft, purpose-built factory in Leeds, designed to offer the business a state-of-the-art platform for growth.
The expansion of the group was through strategic acquisitions and mergers of envelope manufacturers. Tower Envelopes in Bury merged with Print On in 2010 and became the Lancashire division.
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