Company Voluntary Arrangements (CVA)
Where a fundamentally viable company faces a solvency crisis a Company Voluntary Arrangement otherwise called a CVA can be a very powerful tool. It can be a helpful mechanism towards ensuring the survival of the business while, at the same time, guaranteeing fair treatment for its creditors. A CVA can be an attractive alternative to administrative receivership, administration or liquidation.
A Company Voluntary Arrangement is a "deal" that is legally binding between a company and its creditors to repay the outstanding debt over a period of time. The repayment could be from future profits or from the proceeds of the sale of assets that are no longer required within the business.
Key benefits of a CVA
One of the keys to the arrangement is identifying the matters that have caused the financial difficulties and ensuring that these are addressed (making the business viable going forward). The business must have a feasible future and cash flow projections will be required. The arrangement preserves the company and its business and promises either a partial or full payment to creditors over a period of time.
The directors retain control of the company, and the shareholders retain ownership of its assets. In each of the alternative procedures mentioned above, the effective control and ownership of the business and assets reside with the Licensed Insolvency Practitioner.
The commercial terms can be very flexible. The scheme can simply provide for payments out of future cash flows, or perhaps the sale of assets or less usually to exchange debt for new shares.
In some cases it is important to get a legal freeze on creditors claims which can be obtained through the Moratorium option
How a CVA works
With the help of a Licensed Insolvency Practitioner, the directors come to an arrangement with the creditors about the scale and the timing of the repayment of debts. There are no set rules for this. The agreement is entirely between the company and its creditors. The process of entering into a CVA is governed by the court although the court plays no active role in deciding whether the arrangement is approved. To be approved, the proposals must have the support of 75% of creditors who cast their vote at a meeting of creditors. During the period between the meeting being called and taking place, the insolvency practitioner is able to discuss the views of creditors and, if necessary, propose modifications to secure the approval of the CVA.
Once approved, the CVA is filed with the Court and with Companies House and is legally binding. The creditors who are bound by the arrangement can take no other action against the company in respect of their pre-arrangement debts.
A Supervisor is appointed to ensure that the company adheres to the arrangement. The key factor is that it enables the business to continue to trade, so increasing the chance of a turnaround. The proprietors of the company can retain their positions and roles and may safeguard their home if personal guarantees had been given to creditors.
The terms of the proposals to creditors may vary however they will expect their prospects of recovering money will be at least as good as in any other form of insolvency procedure. The proposal will need to make certain formal disclosures including provisions to cater with failure of the scheme.
Only the creditors are advised of the Company Voluntary Arrangement, so the kind of publicity that can damage the company’s prospects can be minimised.
At turpin barker armstrong we can assist you with placing your company into a Company Voluntary Arrangement. Our insolvency practitioners can deal with the whole process and are always at the end of the phone to provide support and assistant where needed. We are happy to go through the process with you before a decision is made as to whether placing the company into a CVA is the best solution for you.
If you require advice regarding a company entering into a CVA, we at turpin barker armstrong can help, please contact our office on 0208 661 7878. We always offer the first meeting free of charge with no obligation, you could also read R3's Get back to Business : A guide to dealing with corporate financial distress which has some great advice and information about seeking advice as early as possible.
Can turpin barker armstrong help me arrange a cva?
Yes is the simple answer!
At turpin barker armstrong we have more than 20 years' experience managing companies and creditors. We help them to find common ground as well as arrange a fair outcome for all.
Get in touch to start turning your business around, the earlier you seek advice the more options will be available to you
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