Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows a company to restructure its debts and continue trading.

A CVA is a type of composition, similar to the personal IVA, where an insolvency procedure allows a company to reach an agreement with its creditors to pay a portion of its debts over an agreed period of time.

A CVA can be used by a company that is insolvent but still has a viable business. A CVA can help a company to:

  • Pay its debts over a longer period of time
  • Reduce the amount of debt it has to pay
  • Negotiate better terms with its creditors
  • Continue trading and avoid liquidation

A CVA is a voluntary arrangement, which means that it must be agreed to by a majority of the company’s creditors. The CVA proposal must be approved by 75% of the creditors by value.

Once a CVA has been approved, it is legally binding on all creditors. This means that creditors cannot take legal action against the company to recover their debts.

A CVA is a complex process, and it is important to seek professional advice if you are considering using this procedure.

Benefits of using a CVA:

  • Chance to save the company: A CVA can help a company to avoid liquidation and continue trading. This can be beneficial for both the company and its creditors.
  • Reduced debt: A CVA can help a company to reduce the amount of debt it has to pay. This can free up cash flow and allow the company to invest in its business.
  • Improved credit ratings: A CVA can improve a company’s credit ratings. This can make it easier for the company to obtain finance in the future.

Potential drawbacks to using a CVA:

  • Cost: A CVA can be a costly process. The company will have to pay the insolvency practitioner’s fees and other costs associated with the CVA.
  • Loss of control: Once a CVA has been approved, the company’s creditors will have a say in how the company is run. This can be a loss of control for the company’s directors.
  • Negative publicity: A CVA can damage the company’s reputation. This can make it more difficult for the company to attract new customers or suppliers.

Overall, a CVA can be a valuable tool for companies that are facing financial difficulties. However, it is important to weigh the benefits and drawbacks of a CVA before deciding whether to use this procedure.

If you are considering using a CVA, it is important to seek professional advice from an insolvency practitioner. An insolvency practitioner can assess your company’s financial situation and advise you on the best course of action.

Additional considerations about CVAs:

  • A CVA usually lasts for 3-5 years.
  • The company must continue to trade during the CVA.
  • The company must make regular payments to its creditors under the terms of the CVA.
  • If the company fails to meet its obligations under the CVA, the CVA may be terminated.
  • If the CVA is terminated, the company may be forced into liquidation.

If you are considering using a CVA, it is important to understand the risks and benefits involved.