Company Voluntary Arrangement
Company Voluntary Arrangement
What is a Company Voluntary Arrangement?
A CVA is a Company Voluntary Arrangement. It is a mechanism that allows an entity to reach an acceptable settlement of its liabilities/debts that are too great to allow it to continue outside of a Company Voluntary Arrangement, in other words the entity would close without it.
Does a Company Voluntary Arrangement mean the company will close?
No. If the Company Voluntary Arrangement is approved the company will continue in existence and be able to continue.
Who decides on the terms of the Company Voluntary Arrangement?
The Licensed Insolvency Practitioner works with the directors to agree the terms that achieve the objective of balancing the interests of creditors and the company.
Creditors may ultimately have the final say on the contents, but creditors can only seek to vary the terms if, when it comes to voting, their debt is sufficiently high to influence the voting.
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It lasts as long as the terms of the proposal dictate.
How is the Company Voluntary Arrangement approved?
It is approved by creditors voting at a meeting. Each creditor has a vote equal to the value of their claim, so if a creditor is owed £1,000, they have a vote for £1,000, if another is owed £50,000, they have a vote for £50,000, and so on.
When votes are cast 75% or more must support the Company Voluntary Arrangement proposal for it to be approved.
When voting creditors can vote to accept, reject or vary the terms the Company Voluntary Arrangement. As described above a creditor’s voting position or influence is dictated by the value of their debt.
Once it has been approved by the creditors, the shareholders then vote upon the proposal. It is hoped the shareholders will support the views of creditors and not oppose it because opposition will leave both the members and the company in a difficult position where a court hearing may be needed.
What happens if the Company Voluntary Arrangement is rejected?
The company will be in the same position it was before the Company Voluntary Arrangement was put forward. A difficult decision will then need to be made by the directors as to which insolvency process the company goes into.
Why can’t the company carry on as it is?
The directors have significant responsibilities to act in the best interest of all stakeholders, but more importantly to make sure the interests of those with a financial stake are not worsened by their actions. Any worsening of this position is a breach of the statutory duties of a director and could result in personal liability. The directors have a very difficult balancing act but must take action because the law dictates that their duties overrule the personal desires of those connected with the company and themselves.
Why do we need to involve a Licensed and Regulated Authority
Entering into a Company Voluntary Arrangement is a complex process that is subject to stringent legislation under the Insolvency Act 1986 and Insolvency Rules 2016 and needs to be prepared with the assistance of a Licensed Insolvency Practitioner.
A Licensed Insolvency Practitioner then needs to act in 2 capacities during the process – these are termed Nominee and Supervisor. The Nominee assists with the preparation of the proposal and has to report on the appropriateness of the proposal for creditors as well as then calling and holding the meetings.
Once the Company Voluntary Arrangement is approved the Supervisor oversees the implementation of the terms and conditions of the proposal.
If you have any more questions, do not hesitate to contact us.
What are the benefits of a Company Voluntary Arrangement?
Debt Repayment can be spread over a longer term
You can only pay what you afford to
Potential ability to write-off a large portion of debt
A CVA will stop your company going into liquidation
Removes pressure from creditors
Personal Guarantees can be negotiated
How can Lucas Ross help?
We specialise in helping companies facing insolvency. Here are some of the ways we can help:
Reduce and write-off debts
Save your company if required
Explain all your options
Help you find the best solution for your situation
Guide you through the process in the most beneficial way to you