A Company Voluntary Arrangement (CVA) can be a viable solution for a company whose business generates profits but which is burdened with historic debt or has become insolvent due to a specific non-recurring event.
A CVA is a legally binding contract between a company and its creditors. In exchange for the performance of certain obligations (for instance payments from future profits, the voluntary sale of specified property, or a third party contribution), creditors agree to give up their existing rights and accept a compromise settlement – usually of a proportion of their debt.
The primary advantage of a CVA is its flexibility, enabling the business and its creditors to agree a viable way forward.
The key steps in the procedure are:
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The appointment of a licensed insolvency practitioner to act as nominee and carry out an initial review of the company’s business. In some instances a more thorough review will be required and recommendations will be made for improvements to the structure of the business.
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The nominee will assist the directors in drawing up a CVA proposal to be put to the company’s creditors. A CVA can also be proposed by a company’s liquidator or administrator where formal insolvency proceedings have already commenced. The proposal is then filed at court together with a report by the nominee, recommending whether creditors’ and shareholders’ meetings should be summoned.
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At the meetings, a formal vote is taken on whether to accept, modify or reject the CVA. If the CVA is approved, the arrangement is binding on all creditors who were given notice of the meeting, whether they attended or voted or not.
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Once accepted, the nominee is usually appointed supervisor with responsibility for implementing the CVA.
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The length of time a CVA lasts depends upon its provisions. A simple CVA can be completed in six months. More complex cases can last three years or longer.