Insolvency Analysis – What is a CVA?

Insolvency Analysis – What is a CVA?

November 19, 2013 by Sandra

Recent consultation documents have been released on Company Voluntary Arrangements, potentially because of its increasing popularity over liquidation.

Company Voluntary Arrangement: Explained

A Company Voluntary Arrangement (CVA) is a formal contract between a company and its creditors. If a company is struggling to pay its creditors, but the company would be viable if financial pressures were reduced, a CVA might be the right option. To put it simply, a CVA is an agreement between businesses and their creditors, formally announcing that all debts cannot be paid in full but a proportion can be paid monthly by the business or a third party.

The first step for any business thinking of a CVA is to discuss with and appoint an insolvency practitioner (IP). Your allotted IP will look at the company as whole, draft a potential CVA and if successful, implement it throughout the CVA period. The proposal will outline all debts owed, what percentage creditors will receive and how long the CVA will last. Once accepted by creditors you will pay your insolvency practitioner an agreed sum at the end of each month, which will then be disbursed to the creditors.

A formal meeting of creditors and shareholders will be arranged by your IP, objections will be discussed and (if you have a skilled IP) solutions found. Once all creditors have agreed on the ‘pence in the pound’ to be disbursed, the CVA will begin. It is a binding contract and any failure to comply can bring about liquidation.

A Company Voluntary Arrangement is a powerful tool, often forgotten or unknown to many directors. If your business is viable but burdened by short-term debts or an unexpected downturn, then get in touch.

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