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What is Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is a formal insolvency procedure in the United Kingdom that allows a financially distressed company to reach an agreement with its creditors in order to repay a portion of its debts over a specified period of time. This arrangement is designed to help a struggling company continue trading while addressing its financial obligations, with the goal of improving its long-term financial stability.
The CVA process typically involves the following steps:
- Proposal: The company’s directors work with an insolvency practitioner (IP), who acts as the nominee, to draft a CVA proposal detailing how the company plans to repay its debts and restructure its operations. The proposal usually includes a repayment plan that outlines how much of the outstanding debt will be paid and the timeframe for repayment.
- Creditors’ meeting: The insolvency practitioner circulates the proposal to the company’s creditors, who then have the opportunity to vote on it in a creditors’ meeting. For the CVA to be approved, at least 75% (by value) of the creditors who vote must be in favor of the proposal.
- Implementation: If the CVA is approved, the insolvency practitioner becomes the supervisor of the arrangement and oversees its implementation. The company must adhere to the terms of the CVA, making regular payments to the supervisor, who then distributes the funds among the creditors according to the agreed-upon terms.
- Completion: Once the company has fulfilled all the terms of the CVA, usually after a predetermined period, the remaining debts are discharged, and the company is considered to have satisfied its obligations to its creditors.
A CVA can be an effective tool for a company in financial distress, as it provides breathing room to restructure and potentially return to profitability. However, it’s important to note that a CVA is not a guarantee of success and may not be suitable for all companies facing financial difficulties.
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