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How to do a Company Voluntary Arrangement
A company voluntary arrangement can only be implemented by an Insolvency Practitioner. The directors will need to appoint an Insolvency Practitioner who will draft a proposal to the company’s creditors.
A meeting of creditors is held. As long as 75% of the value of the creditors who decide to vote agree to the proposal, the CVA is accepted.
Once accepted, all of the company's creditors are bound to the proposal (whether they voted for it or not).
From then on, creditors are prevented from taking out any further legal action against the business.
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When to use a CVA
A company voluntary arrangement can be used where a company is insolvent because it is unable to pay its debt but could continue to trade profitably if this could be reduced.
There is no need for upfront investment and so a CVA is an ideal solution where funds are not available either to settle creditor’s debts or fund an alternative solution such as pre pack administration.
Because the company is not liquidated, there is no investigation carried out on the conduct of the directors of the company. As such a CVA is useful if the directors believe such an investigation might trigger questions of wrongful trading.
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What will a CVA cost
The implementation of a CVA involves no upfront cost. Once accepted, the company must simply maintain the agreed monthly payments to the creditors.
The CVA payments are made in a single monthly amount paid to the insolvency practitioner. Any fees charged by the insolvency practitioner will be deducted from these payments. The company is not required to fund any further costs.
If the company’s situation is highly complex involving many creditors, there may be a significant amount of investigation work before a proposal can be drafted. Where this is the case, a small upfront fee may be charged before the CVA is agreed.
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