Company Voluntary Arrangements

CVAs and insolvency

A company voluntary arrangement (CVA) is an insolvency procedure which involves a company struggling with financial resources and their creditors, which comes to an agreement about the payment of all or part of their debts over a specified amount of time. The CVA simply allows this to happen. This proposal can be made by the directors, administrators or liquidators of the company and cannot be made by the creditors or shareholders. Before a proposal can be made the company is allowed to make an application to the court for a moratorium, which prevents creditors from taking action against the company for up to 28 days.

CVA procedure

When a proposal has been made the insolvency practitioner will report to the court to reach an agreement on whether they are permitted to meet with their creditors or shareholders. This meeting will decide whether the proposal is approved and if 75% of the creditors do approve, it is then binding and the insolvency practitioner becomes the supervisor of the CVA. After a successful CVA the company’s liability to its creditors is then cleared and they can continue to trade during and after the arrangement.

Advantages of CVAs

A CVA is a popular approach when faced with the prospect of liquidation. It can be very advantageous to a company if they have experienced trading difficulties and need time to prove their business model and that they can be successful. A CVA is also a popular option for companies that may need time to come up with a new business plan, if they will be profitable in the long term but are suffering from debts in the short term, if they want to avoid the stigma of liquidation or if companies simply wind down their trading and close down over a certain period of time.

There are numerous advantages to a CVA providing it is successful. For example, if the company's directors are honest about the company's affairs and they work hard, it is more likely to be successful. The CVA must also offer the creditors more money than what would have been received if they went into liquidation. They must also have sufficient working capital so they can pay the day to day expenses of the company and it also helps if they have business, such as a full order book, for example. If the company and their creditors work in unison and are determined enough they will both experience the advantages of the CVA.    

A look at insolvency in the UK

UK insolvency law aims to create a last resort for companies at risk of disappearing due to unmanageable debt and ensure that creditors owed money by insolvent organisations receive their money wherever possible.

The insolvency service — overseeing your hardship

The Insolvency Service is responsible for supervising and investigating the activities of people and businesses that have been declared bankrupt or are dealing with insolvency issues.

The influence of the insolvency act

The Insolvency Act is an important piece of legislation regarding company insolvency and winding up, individual insolvency and bankruptcy and all other relevant provisions regarding the area of insolvency.