Company Voluntary Arrangement (CVA)
Company Voluntary Arrangement
A Company Voluntary Arrangement or CVA is a government legislation backed method of restructuring the repayments of a company’s unsecured debts into an affordable and manageable amount each month with a guarantee that the creditors will cease to pursue the debtor. Upon acceptance a company can write off up to 75% of their unsecured debts.
Many companies choose the CVA route over a voluntary liquidation as the directors believe they can trade through any cash flow issues , trade or tax debts. The creditors can choose to vote against the proposal but run the risk of receiving no money at all if the company chooses to liquidate.
Directors need to give careful consideration to the whole process before proposing a CVA to their creditors as they need to be certain that the company is a viable going concern with the a strong cash flow forecast that can be demonstrated in the proposal, the directors need to show they have the commitment to come through the CVA ..
The chances of the proposal being accepted need to be realistically considered, 75% of the value of the debt have to agree to accept the proposal this shouldn’t be confused with 75% of the creditors. If one creditor owns more than 75% of the value of the debt then the chances of the them accepting the proposal needs to be assessed, if the majority creditor is likely to refuse the proposal then a CVA may not be the best solution.
If any creditors vote against the proposal but more than 75% of the value votes in favour then all of the creditors regardless of their vote have to adhere to the CVA proposal and cannot pursue a separate action.
The CVA is not advertised in the press and would remain confidential, the proposal and the subsequent administration of the proposal has to be administered by an Insolvency Practitioner.