One of the questions that directors frequently ask is ‘how long does a Company Voluntary Arrangement (‘CVA’) have to last?’. The answer to this is there is no set time scale as every company’s financial circumstances are different. The duration of the CVA may depend on a particular asset being sold, the quantum of the company’s liabilities or how much the company can afford to pay into the CVA.
Detailed below are two examples of the variance in time scales in relation to two CVA’s which Cashsolv has dealt with.
Example one – six month duration
We were instructed by two directors who ran a building company. Twelve months prior to our involvement, the company had suffered a significant bad debt. As the directors were approaching retirement age they had made a decision that they no longer wanted to carry on in business. The company was insolvent but the directors were of the view that a competitor might be interested in acquiring the company’s business and assets, which included a freehold property.
The directors decided to market the business for sale but there were no interested parties. As a result of the bad debt and a reduction in the number of new contracts, the company had accrued VAT and PAYE arrears and trade debts. The total liabilities amounted to £290k. At the time that the directors instructed us, the company was coming under increasing creditor pressure, in particular from HM Revenue & Customs who had threatened to issue a winding up petition.
Once we had reviewed the company’s financials, we recommended a CVA as the return to unsecured creditors was better than if the company were placed into liquidation.
The company’s principal asset was its freehold property. We sought the advice from two local commercial property agents who were confident that the property could be sold within a relatively short period of time.
The proposal that was put to creditors was that the company would wind down its business (it had to all intents and purposes ceased to trade), dispose of its assets in order that a dividend of approximately 70p in the £ could be paid to unsecured creditors. The proposed duration was only six months. The creditors approved the proposal. We were able to dispose of the company’s chattel assets within one month of our appointment and the sale of the property was completed within five months. As supervisors, we agreed the claims of the creditors and we brought the arrangement to a successful conclusion within the anticipated six month duration.
Example two – five year duration
We were instructed by the directors of a book publishing company to put forward a CVA to its creditors. An initial review of the company’s financial information showed that if the company were to be wound up in liquidation the creditors would receive nothing. In this case the company had limited realisable assets.
The directors were confident that the company was viable but it needed to make some changes to the business model.
The proposal put forward to creditors was that the company would make monthly contributions and there would be additional annual payments if sufficient profits were generated. The duration of the CVA was five years with creditors predicted to receive dividends totalling 50p in the £.
For the first two years of the arrangement, the monthly contributions were made but as no significant profits were generated, the company did not make any additional payments. In the subsequent three years, sufficient profits were made that additional contributions were paid. After five years the arrangement was brought to a successful conclusion with dividends totalling 55p in the £ being made to creditors.
These two examples demonstrate that there is not a standard duration for a CVA and it varies from company to company.
In certain circumstances, it is possible to extend the duration of a CVA by putting forward a variation to creditors to the terms of the original CVA. We have dealt with CVA’s that have been extended from the anticipated five years duration to six and seven years, both of which were successfully concluded.