Company Voluntary Arrangements (CVAs) Guide

AWarehouse Doors Brief Guide to Company Voluntary Arrangements (CVAs)

Many businesses in the UK are experiencing financial turmoil for a number of reasons – whether it be failing to keep up with shifts in consumer trends (as in the case of HMV and Blockbuster) or that the huge drops in consumer spending, as a result of the recession, meant that businesses simply couldn’t survive (as in the case of Jessops and a number of other high street brands).

As more and more business are experiencing financial hardship, it is absolutely crucial that business owners are fully aware of the options open to the, if they too feel the pinch of the recession.

Liquidation and administration should be used if there are no other options available and many businesses should seriously the option of entering a Company Voluntary Arrangement (CVA) before getting to that point. If a company finds itself in the position of not being able to pay off all of its creditors, a CVA could be the perfect solution.

One key difference between a CVA and liquidation/administration is that if a company can prove that it could be profitable in the future and is worth salvaging, you could use a CVA to help with cash flow, allowing the business to continue in the future.

A CVA is a legally binding document between a company and its creditors, whereby an agreement is made to pay all or part of the debts over a period of time. The debtor will produce a proposal to all creditors, outlining how much of the debt will be repaid, over what period of time and how the business will be profitable in the future.

75% of the creditors must agree to the proposal for it to be put in place. Many creditors will see this more favourably than taking a settlement if the business goes into liquidation, as the amount that will be repaid from a CVA will usually be substantially more. It is also a huge advantage that the agreement is openly between all creditors, so the creditors know that they are being treated equally.

A nominee, who must be a qualified insolvency practitioner, must produce the initial CVA proposal to the courts. It will then be decide if a meeting should be held between creditors to hear the proposal.

If it is decided that there are grounds for a meeting, all creditors must attend and if 75% of the creditors agree, the CVA will be in place.

Thanks to Jane Garrow from Ideal Corporate Solutions for this post. Jane is a CVA specialist and contributes to a number of finance blogs.


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