A Company Voluntary Arrangement (CVA) is a solution for viable companies that are struggling to pay their debts. It is a formal agreement between a company and its unsecured creditors whereby it commits to pay back all or part of its debts over an agreed time period.
A CVA is put together and supervised with the help and support of a licensed insolvency practitioner.
A CVA works well for companies that are viable moving forward but are burdened with debt. It offers companies the chance to repay its creditors over time. CVAs are a very flexible tool and may also involve the sale of excess assets, refinancing or the introduction of external investment to contribute to repaying a company’s creditors.
A general rule of thumb is that a CVA should offer creditors a better alternative to what would be the case should the company be forced to enter into another insolvency procedure such as liquidation.
The length of a CVA will vary based on what a company can offer its creditors; sometimes lasting a very short period but can run for up to five years.
The advantages include (but are not limited to) the following:
As licenced insolvency practitioners we advise, implement and oversee a CVA of a company.
In doing so, we have three distinct roles:
First, we act as an advisor to a company to help them structure a CVA proposal to put forward to their creditors. This may involve advising on practical restructuring strategies to return a company to profitability, discussions with key parties affected, and general support for directors and their other advisors in decision making in the period leading to the implementation of a CVA.
Second, we act as a Nominee whereby we confirm that the CVA is fit and fair to all those affected, is feasible (i.e. has a good chance of succeeding) and therefore should be put to creditors for their consideration.
Unsecured creditors can then vote on whether to accept the CVA proposal. This is coordinated through a virtual meeting during which creditors can ask questions and may suggest variations to the proposed CVA. If over 75% (measured in value of their claim) of those who vote accept the CVA proposal, then the CVA commences and is binding on all unsecured creditors.
Once a CVA commences, our role changes to that of a supervisor of the CVA. As a supervisor, we ensure that a company sees through its CVA commitments, as well as manage the process of repaying those unsecured creditors from money paid into the CVA by the company.
We can also coordinate adjustment to the terms of a CVA if circumstances change for a company, with the consent of creditors.
Bailey Ahmad were approached by the company director of a fine dining restaurant. Having traded successfully for three years and gained a strong reputation, the recession in 2008/09 had seen customer spend reduced, which put cash flow under pressure. As a result, arrears had started to build with certain creditors, the largest being HM Revenue and Customs. Despite the directors’ best efforts to reduce overhead, there was a risk the position could worsen and the threat of liquidation loomed.
Working closely with the directors and their book-keeper, we were able to structure a proposal for a Company Voluntary Arrangement (CVA) which was accepted on the following terms: