A Company Voluntary Arrangement (CVA) is a formal insolvency procedure under Part I of the Insolvency Act 1986. It allows a company in financial difficulty to propose a legally binding arrangement with its creditors to repay some or all of its debts over an agreed period, while continuing to trade.
How does a CVA work?
The CVA process involves several key stages:
- Instruction of a Nominee: a licensed insolvency practitioner must be appointed as Nominee to assess the proposal
- Assessment and proposal: the Nominee works with the directors to assess the business and prepare a realistic CVA proposal
- Filing at court: the proposal is filed at court and sent to all known creditors and shareholders
- Creditor decision procedure: creditors vote on the proposal. Approval requires at least 75% in value of unsecured creditors voting in favour
- Implementation: if approved, the Nominee becomes Supervisor and monitors the company’s compliance with the arrangement
- Completion: on successful completion, any remaining qualifying debt covered by the CVA is discharged
What are the benefits of a CVA?
For the right business, a CVA can offer real advantages over other insolvency procedures:
- The company can continue to trade and management usually stays in control
- Directors are not displaced, unlike in administration
- Creditor pressure can be eased, particularly where a CVA is combined with a moratorium
- Once approved, it binds all unsecured creditors, including those who voted against
- It may help stop a winding-up petition from proceeding
- It is often less disruptive to customer and supplier relationships than administration
Is a CVA right for every business?
A CVA is only appropriate for businesses that are fundamentally viable but carrying unsustainable debt. The key test is whether the business can generate enough cash flow to meet its CVA contributions while continuing to trade profitably.
Businesses that are not trading viably, regardless of their debt position, are unlikely to be suitable for a CVA. In those cases, other options such as administration, restructuring or liquidation may be more appropriate.
What if a CVA fails?
If a company fails to meet its obligations under the CVA, the Supervisor may apply to court to wind up the company or place it into administration. This is why it is essential that the CVA proposal is realistic and deliverable from the outset.
What does a CVA cost?
The Nominee’s and Supervisor’s fees are paid from the company’s contributions under the CVA. There are also court filing fees. The total cost depends on the complexity of the case, but it is often less than the cost of administration.
Get expert advice
If you think a CVA might be the right solution for your business, speak to Mackay Goodwin’s licensed insolvency practitioners. We offer a free, confidential initial consultation.
