Practical guide to a Company Voluntary Arrangement

If your company is under serious pressure, but should the historic debt be removed, the business remains viable, then a Company Voluntary Arrangement (CVA) could be the answer.

A company voluntary arrangement is a vehicle which allows the company to offer a settlement to its creditors. The company pays back a percentage of its debt over a fixed period - often 3-5 years. The creditors agree to accept the reduced payments in full settlement of the debt that they are owed.

There are significant advantages for both the company and creditors if a company voluntary arrangement can be agreed. The company structure and employees are maintained. This means important resources are not lost as they might be if the business was put into administration or went through a pre-pack liquidation. The company is also left in a much better trading position as the burden of its legacy debts is lifted. Creditors have the possibility of receiving some return on what they are owed which they would almost certainly loose if the business was wound up. They also have the opportunity of continuing to trade with the business into the future.

If you believe a Company Voluntary Arrangement is the correct course of action then you will need to follow the steps below:

• Get a corporate insolvency expert to review with the directors the current business situation. The insolvency expert will want to establish that the company is insolvent and that a CVA is the most appropriate option. If in agreement with the plan, the directors must approve the action with a board resolution.
  


• An Insolvency Practitioner is introduced to act as a nominee for the CVA. The insolvency practitioner will have the responsibility to preparing the CVA proposal. This will include business forecasts showing how the payment proposal to creditors will be sustained.
  


• If the company's bank is a significant creditor (which is normally the case), the Insolvency Practitioner will have to meet with the bank to gain commitment that the company voluntary arrangement will be approved and that they will continue to support the company with banking facilities through the arrangement.
  


• The final version of the CVA proposal and nominee's report is filed at court and distributed to all creditors. A meeting of creditors will be called a minimum of 14 days (normally 21) after the issue of the proposal documentation.
  


• The CVA is accepted at the creditors meeting only if 75% of the value of creditors who vote accept the proposal. The acceptance of 50% of the company's shareholders is also required.
  

Derek Cooper is Managing Director of Cooper Matthews Limited, and a member of the Turnaround Management Association UK.

Find out more about CVAs at coopermatthews.com/company-voluntary-arrangement.html

Cooper Matthews specialise in Business Refinancing and Business Recovery Services Advice providing practical insolvency advice for businesses with financial problems to turn your business around. They have significant experience in working with small to medium sized businesses.

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