We talked about Company Voluntary Arrangements in our last blog but how do they work from start to finish?
What is the process of a CVA?
- Stage 1: Advice and Decisions
An insolvency advisor will firstly help you to explore your options to make sure that CVA is definitely the right one for you and your company. They should discuss with you the company’s financial position, review the company’s viability, financial forecasts and background and explain various other insolvency procedures such as voluntary liquidation or Administration before proceeding with a CVA application.
All consultation advice should be free of charge!
- Stage 2: CVA proposal is drafted
After deciding that CVA is the very best solution for your company a Company Voluntary Arrangement proposal would be drafted. This will be done by the company directors with the aid of an Insolvency Practitioner. This proposal will then be sent to all the company’s creditors to outline the CVA and inform them of the creditors meeting.
- Stage 3: Creditors meeting
At the creditors meeting all the company’s creditors will be entitled to vote for or against the CVA proposal. To be approved the vote must pass by at least 75% in value terms; not votes.
That is to say that if a company had 4 creditors and it owed 75% of its debts to creditor number 1 and the rest of its debts were split between the other 3, but the 3 all voted against the proposal and creditor number one voted in favour, the CVA would still be approved as creditor number one is owed the controlling share of the debt in this vote.
An approved CVA legally binds all creditors to the arrangement whether they voted or not.
- Stage 4: During the CVA
The company will make a single monthly payment to the insolvency practitioner supervising their CVA based on what the company can afford after all income and outgoings are calculated. The amount of this monthly payment will also depend on the company’s original level of debt as well as what they have spare each month. The insolvency practitioner will distribute this monthly payment to the company’s creditors appropriately.
Fees will be agreed between the creditors of the company and the insolvency practitioner and these will usually be deducted from the monthly payments for the term of the CVA. It is not common practice to ask for fees up front.
You will have to agree that the company takes no further credit during the term of the CVA. The company should also agree to work in line with its predicted cashflow forecast and if there are any additional profits, these will be made available to creditors.
- Stage 5: Final Stage
The CVA should come to a successful conclusion on or before its fifth anniversary and any outstanding unsecured debt will be written off making the company legally free from debt.
If you think your company might qualify for a CVA or you’d like some advice on this or any other options then remember that Focus Insolvency Group are here to offer free and impartial advice. Every situation is different and so it’s best to seek advice before making any decisions, you can get full and in-depth advice that best matches your circumstances and those of your business.
If you have any comments or questions please leave them in the comments sections below and we’ll endeavour to answer them as soon as possible or just give us a call.
Next time we’ll be looking into Administration.