Company Voluntary Arrangement

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a formal agreement between a company and its creditors. It is normally a process which is considered when a company is under pressure to pay its creditors and it has realistic prospects of paying its debts down with the intention to continue trading.

The intention of a Company Voluntary Arrangement is to avoid compulsory liquidation and it may ultimately be in the interests of creditors also. It also allows the company to keep the day to day control of the business. Sometimes it is not possible to agree informal arrangements with all creditors and therefore a Company Voluntary Arrangement crystallises that arrangement.

A Company Voluntary Arrangement is used to repay any outstanding debts by instalments whilst it continues to trade. Once a business enters into a Company Voluntary Arrangement, its creditors cannot take any legal action against it whilst the Company Voluntary Arrangement remains in force. A Company Voluntary Arrangement allows a company to avoid continuous creditor pressure and entering into liquidation.

When a Company Voluntary Arrangement is entered into, it allows the business to pay off debts via one affordable monthly repayment which in turn is distributed to the creditors by the supervisor of the Company Voluntary Arrangement, a licensed Insolvency Practitioner. A typical term of a Company Voluntary Arrangement is 3 - 5 years and at the end of the term the company will be debt free.

When entering a Company Voluntary Arrangement, a proposal is put forward to its creditors and depending on the company's circumstances, it could be for the full amount of the outstanding debts or for a percentage of the total amount, if the latter then at the end of the Company Voluntary Arrangement, any remaining debt will be written off.

The Company Voluntary Arrangement must be agreed by the majority of creditors and therefore it should be a realistic offer and one that the company can reasonably afford.

Advantages of a Company Voluntary Arrangement:

  • Allows a company to continue trading

  • Stops creditors from taking legal action

  • Interest & charges are frozen for the duration

  • One affordable monthly repayment over a period of 3-5 years

  • Possibly only paying a % of the total outstanding debt subject to creditor approval

 

Disadvantages of a Company Voluntary Arrangement:

  • If the company defaults and ultimately the Company Voluntary Arrangement is terminated then it most likely result in liquidating the company

  • A negative impact on the company's credit rating

 

If you believe the company can survive through its financial  difficulties and all it needs is some extended time to repay creditors then a Company Voluntary Arrangement maybe the solution you require.

It is important as a Director, that if you believe your company may be insolvent, then you seek professional support as soon as possible. Do not delay this as it may have serious implications against the Directors.

 

For help on this and other matters please feel free to contact us.