A CVA is shorthand for a ‘Company Voluntary Arrangement’, sometimes mistakenly called a ‘corporate voluntary arrangement’ or ‘creditors voluntary arrangement’. In simple terms the process is an arrangement between your company and its creditors, allowing the business to pay back the affordable proportion of the debts to creditors over a period of up to 5 years, with the unpaid balance being written off.
CVA’s are ideal for viable but insolvent businesses that have the potential to turnaround and become successful. In most cases, where a sensible proposal is put forward to creditors, even if it means delayed payment and an element of debt being written off, you will usually find that creditors accept the proposal as they would rather the business continue on a more secure financial footing, than risk losing a potential customer.
A CVA can be proposed at any time. Even if your business is under threat of a winding up order, it is not too late to pursue a CVA – but you will need to act quickly and ideally it is better not to allow the business to deteriorate to that extent before taking some proactive steps to address the problem!
At Cashsolv one of our qualified Insolvency Practitioners will be able to quickly determine during an initial assessment if a CVA is the best course of action for your business. Should a CVA be recommended then we are able to draft all of the CVA documentation required, including the terms of the proposal to be put to your creditors.
The CVA draft proposal will be reviewed by the company’s directors and after any agreed amendments a final draft created to be filed with the Court. The filing of the paperwork at court is a formality and there is no court hearing or involvement of a judge, but by filing the papers in court it means that all of the creditors are going to be subsequently bound by the terms agreed. After the filing in court, copies of the proposal are sent to all creditors 3 weeks prior to the date of Creditor’s and Shareholder’s meetings. At the meeting creditors and shareholders will vote their acceptance or rejection of the CVA proposal, either in person, in writing, or via representatives.
Should the meeting result in approval of the proposal by 75% in value of those that actually vote, then it becomes binding on all creditors even those that did not vote. Upon approval at the creditors and shareholders meetings any legal actions against your company are frozen and the company can continue to run with the current directors in place.
During the life of the CVA your company will usually be required to make regular agreed contributions into a trust account out of which payments are then made to the creditors. Should the company become unable to pay the agreed amounts, then depending on the circumstances, the terms of the CVA can be renegotiated or the CVA can be brought to an end.
The entire process of putting a CVA in place is around 6-8 weeks. It will usually take a month, following the decision to put forward a proposal to creditors, to conclude the approval process. The timescale can be quicker in an emergency and various other steps can be taken alongside the CVA process, to protect the company from creditor pressure if required.
The usual maximum term of a CVA, based on regular payments is 5 years, but can be shorter, depending on the circumstances. A three year term is typically what is sought, but subject to what can be afforded to make the proposal attractive to creditors. At Cashsolv, our objective is to ensure that the business survives, so we will negotiate terms that are achievable and that do not overburden the company. At Cashsolv we strongly believe that there is no point agreeing unaffordable terms with creditors and will battle hard on your behalf to ensure that the deal is right for the company.
There are two costs of a CVA proposal. The first is known as the ‘nominee’s fee’, and is the expense of instructing a qualified Insolvency Practitioner to act on your behalf and deal with the formalities. This fee will vary depending on what is involved in each individual case and the firm that you choose to act on your behalf.
On average across the industry this cost will vary depending particularly on the size of your company and the complexity of the arrangement but typically starts at between £3-10,000. The nominee’s fees will usually be paid out of the trust account fund and are agreed by the creditors as part of the proposal.
The second part of the costs are those of ‘supervising’ the arrangement and include collecting the monies due, agreeing the claims of the creditors and paying them regular dividends. These costs also vary significantly, but usually start from around £2,000 - £3,000 per year. These fees are also paid out of the money available to creditors and are also agreed by the creditors. Even though the fees and costs are effectively being paid by the creditors, it is important when considering who to instruct to assist you with a CVA to be clear as to the total costs involved.
If you are interested in discussing a CVA or alternative options, then Cashsolv can offer highly competitive rates in addition to a wealth of experience advising and implementing numerous CVAs. Cashsolv are industry experts, committed and focussed on achieving continuity for your business. Contact us now for a confidential discussion regarding the validity of a CVA for your business, or download our Guide to CVAs.
View our relevant pages for futher information on Company Voluntary Arrangements:
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