Derek Cooper

Company Voluntary Arrangement step by step guide

If your company is under serious pressure, but if the historic debt was removed, the business remains viable, then a Company Voluntary Arrangement (CVA) could be the answer. There are a number of steps you need to follow.

If your company is under serious pressure, but should the historic debt be removed, the business remains viable, then a Company Voluntary Arrangement (CVA) could be the answer.

How does a Company Voluntary Arrangement work?

Its is a process agreed with your creditors to pay back a percentage of the debt over a fixed period of usually 3 or 5 years. The creditors agree to reduced payments in full settlement of the debt owed.

Why would the creditors do this?

Creditors have the possibility of receiving some return on what they are owed which they would almost certainly loose if the business was wound up. They also have the opportunity of continuing to trade with the business into the future. There are significant advantages for the company if a company voluntary arrangement can be agreed. The company structure and employees are maintained. This means important resources are not lost as they might be if the business was put into administration or went through a pre-pack liquidation. The company is also left in a much better trading position as the burden of its legacy debts is lifted.

If you believe a Company Voluntary Arrangement is the correct course of action then you will need to follow the steps below:

• The directors of the company must first review the current business situation with a corporate insolvency expert. The insolvency expert will want to establish that the company is insolvent and that a CVA is the most appropriate option. If in agreement with the plan, the directors must approve the action with a board resolution.
• An Insolvency Practitioner is introduced to act as a nominee for the CVA. The insolvency practitioner will have the responsibility to preparing the CVA proposal. This will include business forecasts showing how the payment proposal to creditors will be sustained.
• If the company's bank is a significant creditor (which is normally the case), the Insolvency Practitioner will have to meet with the bank to gain commitment that the company voluntary arrangement will be approved and that they will continue to support the company with banking facilities through the arrangement.
• The final version of the CVA proposal and nominee's report is filed at court and distributed to all creditors. A meeting of creditors will be called a minimum of 14 days (normally 21) after the issue of the proposal documentation.
• The CVA is accepted at the creditors meeting only if 75% of the value of creditors who vote accept the proposal. The acceptance of 50% of the company's shareholders is also required.

Getting the Company Voluntary Arrangement agreed is the start of the hard work. Directors will then have their work cut out to make sure that the company flourishes and the terms of the arrangement are maintained. It is advisable to consider some changes to the management in order to bring new energy and experience to the company - this does not need to be a major executive cull. However, at the very least a new non executive director should be introduced. New capital investment for business development may be desirable. The company insolvency expert will be able to advise about this.

The fees associated with carrying out a company voluntary arrangement will normally consist of an initial fee charged by the company insolvency expert. Additional Nominee and Supervisors fees will be charged by the insolvency practitioner. However, these will generally be taken from the ongoing payments that the company makes into the CVA. As such, the company will not have to pay these additional fees over and above what it is already paying to the CVA.

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