Pub and Hotel Business Solutions

What is a CVA (Company Voluntary Arrangement)

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A CVA is a legally binding agreement with your company's creditors to allow a proportion of its debts to be paid back over time.

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Once the proposal has been approved then all unsecured creditors are bound by the arrangement.  The company can carry on trading as usual, and the directors remain in control. The CVA is monitored by a supervisor who has to be a licensed insolvency practitioner.  The arrangement usually lasts for 3-5 years. 

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A CVA can be the best rescue tool for a company that is viable going forward but is burdened by historic debt. The directors, who remain in control, are able to trade out of their current financial problems provided that they have addressed the problems that caused the debts in the first place.

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Who can apply for an CVA

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A CVA is essentially a deal between an insolvent Limited Company and its creditors, this deal places a legal ring fence, called a moratorium, around the company and stops creditors attacking it. This allows a viable but struggling company to repay some, or all, of its historic debts out of future profits, over a period of time to be agreed.

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How does an CVA work 

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• Following a formal decision by directors to enter this routE, a professional insolvency practitioner is appointed to set up the agreement.

• The IP 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.

• Directors contact secured creditors, the bank for example, to let them know how their lending will be repaid.

• The proposal is lodged at court and given an originating number, after which copies are sent to all unsecured creditors.

• There is a minimum period of 14 days during which creditors can consider how they will vote. In practice, a longer period of time is often provided to allow HMRC and others the time they need to ensure the repayment levels will meet their needs.

• 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% (by value of debt) of the creditors 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. This is done within four days of the vote, and details the outcome, who was present, and how each person voted.

• Interest and charges on all debts are frozen, and repayments made as set out in the CVA.

• As long as all terms and conditions are adhered to, creditors are prevented from taking any further legal action against the debtor company.

 

What should I be aware of 

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• The company is given a zero credit rating and some contracts may need to be retendered

• Normally CVAs will run for 3-5 years 

• A proposal cannot be put together in a couple of days.

• Depending on complexity 3 weeks is really the shortest time one can practically put a proposal forward at reasonable cost.

• It does not bind the secured creditors.

• 75% by value of the creditors need to agree.

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