Company Voluntary Arrangement
Company voluntary arrangement – the financial support that every business should consider
In the dynamic world of business, companies often find themselves navigating through financial storms, struggling to stay afloat amidst mounting debts and operational challenges. When conventional strategies seem insufficient to address these issues, a Company Voluntary Arrangement (CVA in UK) emerges as a potential lifeline. This powerful financial tool, primarily employed in the United Kingdom, offers distressed companies the opportunity to regain their footing and emerge stronger
Together with the Creditors Voluntary Liquidation, a Company Voluntary Arrangement (CVA) is a formal, legally binding agreement between a financially distressed company and its creditors. This arrangement provides the company with the opportunity to restructure its debts and manage its finances more effectively. A licensed insolvency practitioner typically oversees the process, acting as a neutral intermediary between the company and its creditors.
What is a CVA - Company Voluntary Arrangement
What are CVAs? A company voluntary arrangement, also called a CVA, is legally binding agreement with your company’s creditors to allow a proportion of it’s debt to be paid over time. It is also referred to as a voluntary arrangement with creditors.
It is performed when a company is viable to go forward but is burdened by debt.
A company voluntary arrangement can only be implemented by a licensed insolvency practitioner who will draft a proposal for the creditors. A meeting of creditors is held to see if the CVA is accepted. As long as 75% (by debt value) of the creditors who vote agree then the CVA is accepted. All the company creditors are then bound to the terms of the proposal whether or not they voted. Creditors are also unable to take further legal actions as long as the terms are adhered to, and existing legal action such as a winding-up order ceases.
In this process the director of the limited company will have a minimum involvement.
Company CVA – follow the steps for the perfect solution
The company’s directors, in collaboration with an insolvency practitioner, assess the company’s financial position and viability. This includes a review of current debts, assets, cash flow, and future prospects. Afterwards, a detailed proposal outlining how the company intends to repay its debts and restructure its operations is prepared. This proposal is then presented to creditors for their approval. Creditors are given the opportunity to vote on the proposal. To be approved, it must receive support from at least 75% (by value) of the creditors who vote, in case of a UK CVA
How long does a CVA take?
Company Voluntary Arrangements can last from a few months to a few years. It all depends on the complexity of the case (how many creditors, how big is the debt, how many assets are there etc.).
How much does a CVA Cost?
The market’s average for a standard CVA is £7,000.00.
This is just a standard fee, and the price can differ from case to case.
Things like the number of creditors, the total debt, number of shareholders, asset level etc. can influence the price.
Company voluntary arrangement (CVA) – feel the benefits of this options
Once approved, the CVA is implemented, and the company adheres to the terms and conditions outlined in the proposal. Typically, this involves making regular payments to a CVA supervisor, who then distributes these funds to the creditors as per the agreed terms. The CVA supervisor monitors the company’s progress, considering the Company Administration, and ensures that it complies with the terms of the arrangement. This may include ongoing financial reporting and assessments
CVA company voluntary arrangement – plenty of reasons why you should consider this
The company can continue its operations while under a CVA, allowing it to generate revenue and recover financially. This continuity is crucial for maintaining customer relationships and the overall value of the business. What is more, successfully completing a CVA can improve the company’s creditworthiness, making it easier to access financing and conduct business with suppliers and partners.
The Company Voluntary Arrangement (CVA) is a powerful financial tool that offers financially distressed companies a lifeline to recovery. It allows businesses to restructure their debts, preserve jobs, and continue operations while avoiding the stigma of insolvency. When carefully planned and executed, a CVA can provide a path to financial stability and future growth.
You might have heard terms like liquidation, company administration, insolvency practitioner, and many more. But what do they mean and what might be the best insolvency procedure for your company?
Creditors Voluntary Liquidation is a legal process in which an insolvent company is wound up. The appointed Liquidator will try to realise assets (by recovering the assets from 3rd parties, selling the Company’s assets for the best price, etc) to repay the Company’s debts. During the Liquidation process, the Company is under the Liquidator’s control and it will be dissolved by the end of the liquidation process
MVL – Members Voluntary Liquidation (MVL) is a process of winding up a solvent company in a cost-effective way. This process is more advantageous than striking-off the Company on Companies House and taking out the assets as dividends since it is more tax-efficient. Upon making sure all company debts (if any) have been settled, the Liquidator will make a distribution to the Members of the Company
You are insolvent if you cannot pay debts when they become due (either now or, because of some contingent liability of the business, in the future) or if your assets are worth less than your total liabilities.
There are three tests you can run to see if your company is solvent or insolvent.
Cash Flow Test – A company should be able to pay it’s debt as they fall due. If this is not possible your company may be insolvent.
Balance Sheet Test – If your companies liabilities (Creditors, Loans, Debts) exceed your company assets this means your company is likely to be insolvent.
Legal actions against your company – A major warning sign that your company is insolvent is receiving any letters threatening with legal actions against your company, from creditors. Such legal documents may be: Winding Up Petitions an CCJ – County Court Judgement.
In reality there are three main options you have in front of you
- Pay the entire debt. This can prove to be quite difficult if you are already facing financial difficulties.
- Do nothing – this is the worst option possible. Most likely a creditor will issue a winding up petition, and your company will enter compulsory liquidation. This is quite an unpleasant process, as an Official Receiver (Court Representative) will liquidate your company.
- Enter a voluntary Insolvency Procedure such as CVL, Admin, CVA.
The main Insolvency Procedures are:
- Creditors’ Voluntary Liquidation (CVL) – an easy way to close down the company without having to pay all the outstanding debts
- Administration – a way to rescue the business by finding an external investor
- Company Voluntary Agreement (CVA) – An agreement with the creditors aimed to reduce the total amount owed and to extend the timeline of the repayment
A company can be easily placed into liquidation. The first step is to have a discussion with a Licensed Insolvency Practitioner and determine a course of action. If Liquidation is the best route, the process can be started immediately. The steps for placing a company in liquidation are the following:
Prepare the statement of affairs (SOA) – a document presenting the clear situation of your company, the level of debt, all the creditors, the assets level of the company and the history of your company.
Board meeting – Directors of the Company meet and decide to place the company in liquidation
Members Meeting – The Shareholders also decide that the company should be placed into liquidation
Creditors meeting – the creditors meet and agree that the company should be placed in liquidation
For more details regarding company liquidation click here.
A Creditors’ Voluntary Liquidation usually costs around £6,000 + VAT. The price can vary depending on the total amount of debts and the number of creditors.
An Administration ranges from £7,500 to £10,000, depending on the size of the business and the total amount of debts.
In a creditors voluntary liquidation the cost to place the company into liquidation may be paid from assets if sufficient.
Liquidators fees post appointment can only be drawn from asset recoveries.
The benefit of a limited company provides the director with protection against company debts.
However please contact one of our insolvency practitioners if you have signed a Personal Guarantee over a debt of the company.
The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State for Business, Enterprise and Regulatory Reform, a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.
Examples of the most commonly reported conduct are:
Continuing the company’s trading when the company was insolvent;
Failing to keep proper accounting records;
Failing to prepare and file accounts or make returns to Companies House; and
Failing to send in returns or pay to the Crown any tax that is due.
Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time.
There are few instances where the Directors are liable such as wrongful trading.
Each insolvency case is different and the only way to know for sure is to speak directly with a Licensed Insolvency Practitioner.
Yes, it is possible for a director to set up a new company although there may be some restrictions put in place by HM Revenue & Customs
Before making any decision, a director has to consult with a Licensed Insolvency Practitioner. Our team can arrange a free consultation with some of the best professionals in the industry.
Directors’ duties cease at the date of liquidation, although the director’s full ongoing co-operation and assistance is required by the Liquidator. The company’s directors must:
• Give the Liquidator information about the company’s affairs
• Provide details of its assets and liabilities
• Preserve and hand over the company’s assets to the Liquidator; and
• Preserve and hand over the company’s books, records, bank statements, insurance policies and other papers relating to its assets and liabilities.
Feel free to either reach us directly via phone or email or submit a consultation form, detailing your situation and one of our team members will get back to you as promptly as possible.