Company Voluntary Arrangement (CVA)

A company voluntary arrangement is a procedure which enables a company to put a proposal to its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs. A composition is an agreement under which creditors agree to accept a certain sum of money in settlement of the debts due to them. The procedure is extremely flexible and the form which the voluntary arrangement takes will depend on the terms of the proposal agreed by the creditors. For example, a CVA may involve delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets.

The proposed arrangement requires the approval of at least 75% in value of the creditors, and once approved is legally binding on the company and all its creditors, whether or not they voted in favour of it. There is limited involvement by the court, and the scheme is under the control of a licensed insolvency practitioner acting as a supervisor.

The CVA procedure was introduced by the Insolvency Act 1986 and was designed primarily as a mechanism for business rescue. The procedure is also often used instead of liquidation as a means of distributing funds on the conclusion of (and, occasionally, during) an administration.

This is a proposal for the Company to pay its debts over a period of time.

Advantages of a CVA:
  • Prevents/halts winding up petitions and other court action
  • Freezes the existing debt and groups these together
  • Payments are made from profits (usually for a period of up to 5 years)
  • Interest on unsecured debts is frozen
  • Up to 75% of the debt could be written off
  • The Company only contributes what it can afford on a monthly basis
  • This is then paid out to the creditors with the remaining debt being written off
  • Allows the business to continue trading
  • A better outcome for Creditors than if the company was liquidated.
  • Legally binding on all unsecured creditors
  • Existing customers need not know about the arrangement
  • VAT and PAYE arrears can be included in the arrangement
  • Directors maintain control of the company

Procedure for CVA

1. Proposal
May be made by directors, administrator or liquidator.

2. Nominee
Insolvency practitioner nominated under terms of proposal to supervise its implementation. Where the company is in administration or liquidation, the administrator or liquidator may act as nominee.

3. Where nominee is not administrator or liquidator
Nominee notifies the court whether, in his opinion, a meeting of creditors should be held in order to consider the proposal.

4. Where nominee is administrator or liquidator
Nominee proceeds directly to convene creditors’ meeting.

5. Creditors’ meeting
Usually held within eight weeks of the notice of proposal to nominee. May approve, modify or reject proposal and may choose another nominee. Requires a majority of 75% in value of the creditors present and voting. The proposal may not affect the rights of secured or preferential creditors without their assent.

6. Supervisor
If the proposal is approved, the nominee becomes the supervisor and implements the arrangement in accordance with the terms of the proposal.