What is a Company Voluntary Arrangement (CVA)?

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.

FAQs

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:

  • Directors remain in day to day control of operations
  • A company and its business can continue to trade throughout the CVA
  • It can improve cash flow quickly as payments are structured to be manageable and affordable, also offering peace of mind in the long term
  • It can stop pressure from HMRC
  • It can stop the threat of a winding-up petition being presented by a creditor
  • There is no specific requirement for assets to be bought back by a successor company as is often the case with administration and liquidation sales. This can be particularly helpful where prospective purchasers have limited funding available
  • Personal guarantees offered by directors may be deferred or reduced in certain circumstances
  • Staff redundancy costs can be included in a CVA avoiding an initial cash flow hit to a company’s business. The employees affected may be entitled to make a claim from the government’s Redundancy Payments Service in respect of all or part of their redundancy entitlements when a company cannot afford to pay them
  • A CVA carries less stigma than other insolvency processes such as liquidation or administration
  • Any outstanding unsecured debts will be written off at the end of the CVA
  • A CVA can adapt if circumstances change

As licenced insolvency practitioners we advise, implement and oversee a CVA of a company.

In doing so, we have three distinct roles:

Advisor

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.

Nominee

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.

Supervisor

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.

Case study - restaurant business

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.

The solution

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:

  • An agreement with the landlord for a 50% rent reduction for three years to help stabilise cash flow
  • Further personal investment by the directors over a three-month period to be ring-fenced for creditors within the CVA in full and final settlement of the company’s historic debt. This resulted in an estimated return to creditors of 20p in the £ in the CVA, compared to a £0 return in liquidation
  • The proposal provided that all future expenses would be met as they fell due, and there would be no additional requirement to contribute to the historic debt burden unless substantial profits materialised within the first 10 months of the CVA

The benefits

  • Creditors received more than in liquidation
  • The company and business survived based on a sustainable and well thought out plan
  • Jobs were saved
  • The landlord continued to receive rental payments
  • The CVA provided the owners an opportunity to achieve their long-term aim of building a successful and profitable business