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Company Voluntary Arrangement explained


A company voluntary arrangement (CVA) is a formal insolvency process. It is used when a company cannot pay all of its debts, however, it allows the company to trade on during the insolvency process with a view to providing a better return for creditors than if the company ceased trading and was liquidated.

 

A CVA can be used in two ways as either an exit from administration or on a stand-alone basis.

 

A CVA is an agreement between the creditors of the company and whoever is proposing he CVA (usually the directors) to pay an agreed amount into the CVA for an agreed amount of time. The amount paid in and the length of the CVA are agreed by creditors. For example, the CVA may provide for all creditor claims to be repaid in full over a 3 year period or it may provide for creditors to receive 50% of their debts over a four year period. The CVA is very flexible and can be adapted to suit each particular situation.  

 

Normally a CVA works by allowing a business which is experiencing difficulties, to freeze its debts at the date of the CVA and then continue trading under the terms of the CVA which have been agreed by creditors. Again, usually, the CVA will provide that the business makes a monthly payment into the CVA which goes to settle creditors’ claims at the date of the CVA.

 

An Insolvency Practitioner is required to oversee the CVA and is appointed as Supervisor of the CVA to administer the terms under which the CVA should run.

 

Events during the CVA process (not already in administration)

 

  • After a formal decision by directors to enter this route, a licensed insolvency practitioner is appointed to set up the CVA.
  • The insolvency practitioner undertakes a full review of the company’s operations and financial processes to produce a draft proposal for the agreement of directors. Financial forecasts for up to five years are included, and these assist creditors in their decision about whether to vote in favour of the CVA.
  • Directors contact secured creditors, to let them know their lending will not be effected by the CVA.
  • The proposal is lodged at court and given an originating number.
  • Meetings of creditors and, members of the company are convened to consider approving the CVA.
  • At the meeting of creditors, questions can be asked of the directors and a vote takes place that dictates whether or not the CVA will be accepted.
  • 75% of the creditors participating need to agree to the proposal, after which another vote is taken without the inclusion of connected creditors. This vote requires at least 50% of votes to be in favour.
  • Once the meetings have finished, the insolvency practitioner is required to submit a written report to the court and all creditors confirming whether or not the CVA has been approved.
  • Once meetings have finished, the insolvency practitioner is required to submit a written report to the court and all creditors. This is done within four days of the vote and details the outcome, who was present and how each person voted.
  • As long as all terms and conditions are adhered to, creditors are prevented from taking any further legal action against the company.

 

 

Once the CVA term ends

 

The insolvency practitioner provides a completion certificate at the end of the CVA. The company is released from its obligations and any remaining debts that were included in the CVA are written off.


Added: 09 Mar 2017 09:59


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The Timothy James Partnership

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Insolvency Practitioners Association
About Us


We are an independent firm of specialist Licensed Insolvency Practitioners located in Bromsgrove, Worcestershire.

At The Timothy James Partnership, we work very closely with local businesses and professionals, providing guidance on formal insolvency procedures and advice on restructuring businesses.

We recognise that at times, companies find themselves in difficult financial circumstances and our aim is to provide practical solutions in these situations.