What Is Company Voluntary Arrangement?

If your company is experience problems with solvency and repaying debt commitments to your creditors, a Company Voluntary Arrangement may be the solution that will help you regain control of your business finances, and set you on the road to recovery.

Company Voluntary Arrangement definition

Company Voluntary Arrangements (CVA) are in many ways similar to the Individual Voluntary Arrangement (IVA) debt solution for personal consumers.

A CVA is a legal procedure by which an insolvent company reaches an agreement with commercial creditors to repay its debts — in full or in part — at an arranged amount over an agreed period.

A Company Voluntary Arrangement can be agreed at any point of a company’s insolvency, up to and including during liquidation.
 

• Company’s directors, an administrator or receiver, or by the appointed liquidator can apply for a CVA.
• In practice, a CVA will generally involving either, or a combination of:
• Restructuring a company’s debts
• Delayed or reduced debt repayments, by agreement with creditors
• Orderly disposal of assets to allow repayment of debts

The CVA must be administered by a qualified insolvency practitioner. The practitioner will fully review the company’s finances and submit a proposal to all the business creditors, which will include full details of the business’s liabilities and assets, offers for repayment of debts, and the proposed duration of the CVA.

Three quarters of the commercial creditors determined by debt value must agree in a meeting to accept the terms of the CVA proposal, after which the arrangement becomes binding on all parties.

The company then makes one single payment each month directly to the insolvency practitioner who, after he has deducted his fees, then disburses the payments out to the individual creditors as agreed.

While bound by the terms of a CVA, creditors may not start or pursue legal action against the company — this can be of enormous benefit to the insolvent business as, other than fees collected by the insolvency practitioner, the company avoids the potentially crippling burden of legal costs or judgements. 

The advantages of CVAs

Like some other forms of structured debt management, a CVA has the immediate advantage of stopping the chasing of outstanding debt repayments by creditors, debt collection agencies or solicitors. This may not only help protect your company’s assets, but stops valuable company resources being tied up in fending off debt collection or legal action.

For small businesses, the Insolvency Act 2000 introduced the CVA moratorium, which allows companies to apply to a court initially for a moratorium of up to 28 days. Once approved by the court, creditors may not start legal proceedings against the company, other than in certain specific circumstances.

This allows breathing space for the formal CVA proposal to be drawn up and submitted.

As in most matters of company law, different legal policies and procedures apply in England and Wales, Scotland and Northern Ireland. It is vital to ensure that you seek advice from a business recovery specialist or insolvency practitioner with specific knowledge and experience of Company Voluntary Arrangement in your particular legal jurisdiction. 

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