Company Voluntary Arrangement (CVA)

Introduction

If a company has a viable business and it can demonstrate that it can be returned to profitability then a Company Voluntary Arrangement (CVA) is a procedure which enables a company to put a proposal to its creditors to settle the company’s debts in full or in part over a defined period of time. Creditors forming part of the agreement cannot take legal action against the company during the course of the CVA which will bind creditors even if all do not accept the proposal so long as the requisite majority agree. A proposal is normally made by the company’s directors, who remain in control of the company, but can also be made by an Administrator or a Liquidator of a company. It is essential that the directors and management team accept the need for change and are committed to the company’s survival and that appropriate funding is available.

A similar procedure can be used for insolvent partnerships which is called a Partnership Voluntary Arrangement (PVA).

Procedure

Proposal

Where the company does not propose to pay its debts in full then the proposal by a company to its creditors is for a composition in satisfaction of its debts which is an agreement under which creditors agree to accept a certain sum of money in settlement of the debts due to them. The company will propose to make agreed contributions for that purpose into a CVA.

Typically, a regular monthly contribution from ongoing trading profits plus more significant lump sum contributions often on a 6 monthly basis are proposed. Some surplus assets may also be realised and the proceeds thereof may form part of the proposal.

The proposal should demonstrate that creditors are to be placed in an improved position as continuation of trading should effect a better return than closure and potential liquidation.

An Insolvency Practitioner will assist in drafting the construction of the proposal, albeit financial forecasts therein will be the responsibility of the company and the Insolvency Practitioner will normally be the Nominee named in the proposal.

The proposal may not affect the rights of secured or preferential creditors without their consent.

Once finalised and approved by the directors the CVA proposal is filed in Court together with a report by the Nominee stating whether, in his opinion, a Creditors' meeting should be called to consider the proposal.

Creditors’ Meeting

The proposal is sent to all known creditors with at least 14 clear days notice. The Insolvency Practitioner appointed in the proposal will chair the creditors’ meeting. His appointment as Supervisor of the CVA will be part of the proposal put forward. Creditors may approve, modify or reject the proposal and may choose another IP to act as Supervisor of the CVA (provided those putting the proposal agree to any modifications proposed). Approval takes place if a 75% majority of creditors in value of the total creditors voting at the meeting is obtained whether in person or by proxy (plus a 50% majority excluding associated creditors). If the proposal is approved the Nominee becomes the Supervisor in accordance with the terms of the proposal.

Implementation

Once approved, with or without modifications, then all creditors are legally bound. A report on the outcome of the meeting is filed in Court and Companies House and notice of the result sent to all creditors.

The company must pay the agreed periodic contributions to be paid into the CVA into an account administered by the Supervisor for the purpose. Failure to meet the contributions will constitute a default whereby the CVA will fail which usually would lead to Liquidation.

If the CVA proposal cannot be implemented in the precise terms of the agreement then a proposal can be made for such terms to be varied by the calling of a further creditors’ meeting to consider any variation(s) subject to the requisite majorities approving same.

The company continues to trade under the control of its directors and management team. The contributions to the CVA after costs are periodically distributed to creditors in accordance with the terms of the proposal or as a lump sum. No further interest or costs are accrued. No enforcement action can be taken by the CVA creditors.

Completion

Upon completion of the CVA the company has no ongoing liability to its pre-CVA creditors and the unpaid balances of such debts are written off.

Not more than 28 days after final completion of the CVA the Supervisor sends notice to all creditors and members bound by it that the CVA has been fully implemented together with a report on the outcome thereof including a summary of his receipts and payments. Copies are sent to the Court and Companies House and the Supervisor vacates office when such copies are sent.