Insolvency Analysis – What is a CVA?

Insolvency Analysis – What is a CVA?

November 19, 2013 by Sandra

A Company Voluntary Arrangement (CVA) is a company rescue and restructuring option to help ensure a company’s survival. It’s a formal contract between a company and its creditors, highlighting that whilst at present the company cannot pay its debts, it will be able to out of future profits.

If your company is struggling to pay its creditors but would still be viable if financial pressures were reduced, a CVA might be the best option for you. Read on to find out more about the CVA process...

What is  CVA?

A Company Voluntary Agreement (CVA) essentially enables you to rescue and restructure your business to ensure it survives. It’s a formal arrangement between a company and its creditors whereby the company in question pays towards its debts for an agreed period of time, and once completed, all the remaining debts are written off. 

The process 

The first step for any business thinking of a CVA is to appoint an insolvency practitioner to provide expert advice and guide you through the process. Your insolvency practitioner will then draft a potential CVA proposal and if successful, implement the proposal throughout the CVA period. The proposal will outline all debts owed, what percentage creditors will receive and how long the CVA will last. During the proposal process, it is ensured that the insolvency practitioner can go back to the creditors within the period of the arrangement to renegotiate with them. This is referred to as a variation. 

A formal meeting of creditors and shareholders will be arranged by your insolvency practitioner, where any objections will be discussed and solutions found. Once accepted by creditors, the CVA will begin. It will also become public knowledge and be registered on Companies House. The business will then pay towards its debts for an agreed period of time, and once this time period is completed, all the remaining debts will be written off.

Remember, a CVA is a binding contract and any failure to comply can bring about liquidation.

How it works

A CVA can only be proposed if a company is insolvent or contingently insolvent. In order to enter a CVA, your business must be able to return to profitability and have a viable future. If you are prepared to fight for your business’s survival, a CVA could be the best option. 

However, remember that a CVA is not a panacea for your company. Rather, it is a very powerful framework for change and protection of a distressed but viable company. In reality, although it is often difficult to propose and get approved, this first step is often the easiest part of the business rescue/turnaround process. Turnaround work is extremely difficult, so if you want to ensure your business survives, you need to enlist professional help. 

A CVA should aim to maximise creditors’ interests, preserve viable but distressed businesses, preserve economic activity and save jobs, return value to the creditors and provide a realistic prospect of a return for shareholders. As such, vital components of a CVA include:

  • A viable business that can return to profitability
  • Commercially structured – can succeed without over-promising creditors
  • Introduction of appropriate levels of working capital in addition to the restructuring of debt
  • Management accepting that change is necessary
  • Determination and hard work is essential throughout the period of the CVA
  • Directors need to use an experienced Insolvency Practitioner
  • Cautious forecasting

Conclusion

When it comes to business insolvency, it’s best to act quickly. By seeking professional advice on the options available, you can make sure you offer the best outcome for your company and your staff.

At McAlister & Co, we are experienced in the field of business insolvency and can help you to look at your business and its future. 

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.

New call-to-action

Filed Under: Company voluntary arrangement explained

We don’t need personal or company details to answer initial questions on your situation:

Call 03300 563 600

Recent Posts