Company Voluntary Arrangements (CVA)

A CVA is a legally binding agreement with your company’s creditors which allows a proportion of its debts to be paid back over time. 75% of the creditors, by value, who voted need to support the proposal.

Once the proposal has been approved then all* unsecured creditors, are bound by the arrangement. The company can carry on trading as usual, and the directors remain in control. The CVA is monitored by a supervisor who has to be a licensed insolvency practitioner. The arrangement usually lasts for 3-5 years.

A CVA is the best rescue tool for a company that is viable going forward but is burdened by historic debt. The directors, who remain in control, are able to trade out of their current financial problems provided that they have addressed the problems that caused the debts in the first place.

This page will help you to discover what a company voluntary arrangement does, understand how it works and how it can help you stop creditor pressure and turnaround your company. It is similar to an Individual Voluntary Arrangement (IVA) but for companies.

If you do not wish to read through all the guides and information on the site, then you can call our support centre on 0800 970 0539 for a no obligation confidential chat. Read on to see the benefits of a Company Voluntary Arrangement, and how it can help you.

*It is possible to exclude creditors from the arrangement by paying them in full but you will need good reason to do so (let us advise on this)

The Advantages of a CVA For Your Company

1. Company voluntary arrangements can improve cash flow quickly
2. Stops pressure from HMRC tax, VAT and PAYE while the company voluntary arrangement is being prepared as we will talk to them.
3. A CVA can stop the threat of a winding up petition
4. Costs can be rapidly cut in a CVA as expensive managers can be made redundant
5. Company voluntary arrangements can terminate employment, payment/compliance obligations under leases, onerous supply contracts
6. Also allows your company to terminate property lease obligations and vacate premises.
7. All money owed to creditors is bundled up in one monthly payment to the supervisor
8. Remove employees with no redundancy payments of lieu of notice costs (paid by the Government)
9. Terminate onerous customer/supplier contracts
10. Board and shareholders remain in control of the company
11. A CVA has much lower costs than administration or a Scheme of Arrangement
12. You do not have to say your company is in a Company Voluntary Arrangement to your customers although it is recorded at Companies House

Finally, it is ALSO a good deal for creditors as they retain a customer and receive a some of their debt back over time, usually between 30p and 100p in every £1 of debts, depending on what your company can afford to pay back.

We can hive the business out to a new clean company, and it can trade with customers and suppliers. The old company gets a management fee to pay the creditors back.

What is the difference between a Company Voluntary Arrangement and administration?

The main difference is that, during administration, the Administrator or Insolvency Practitioner manages the company whereas, in a CVA, the directors remain in control of the company; this is providing they abide fully by the terms of the CVA agreement.

Other important differences include:

• There is an investigation into the director’s conduct during an administration but not in a CVA.
• Secured creditors can appoint administrators to take control of a business involuntarily, whereas a CVA is a voluntary agreement between a company and its creditors.
• Administration is a more complex and costly process, partly because it involves the Court, insolvency practitioners fees and solicitors fees, so there are greater legal costs to pay.

A Summary of a CVA

A CVA is essentially a deal between the company and its creditors. Once approved, this deal becomes legally binding on all unsecured creditors for past debts, stopping them from taking action. This allows a viable but struggling company to repay some, or all, of its historic debts out of future profits over a period of time to be agreed.

Directors stay in control of the company, with RMT providing support. It can stop legal actions like winding up petitions if you use a quality, experienced advisor. The directors need to be committed to saving the business. Also a company voluntary arrangement allows the opportunity for the business to be sold or refinanced

The process has been part of UK law since 1986 and is one of the Government’s preferred rescue options.  In fact, recently the Government published a report that found that the mechanism was fair to creditors.

How much does a CVA cost?

This does depend very much on the following.

• Total number of creditors
• Number of employees,
• The bank’s position,
• What level of negotiation is needed.

In the end, a company voluntary arrangement is a deal and doing a deal involves talking to people and the stakeholders in the business. It helps if the company has good financial information and there is not a compressed timetable due to aggressive legal actions by creditors. By acting early this can be generally avoided.

So how do we pay if we are in financial difficulty?

Simply, once we are instructed all the creditors deal with us and we can effectively freeze payments to creditors until a deal is done. You then pay fees weekly over a longer period.  Some advisors say that a company voluntary arrangement is paid for by the creditors. This is a bit misleading and it is likely that personal guarantees will be requested to cover the payments into the company voluntary arrangement and further fees. What happens then if it fails??? Err… you will run up a large bill that you will be personally liable for.

We do not ask for these personal guarantees. To discuss how much we charge, please call us on 0800 970 0539