A Company Voluntary Arrangement is a formal agreement with your existing creditors and means the existing company keeps going; same bank, licenses and qualifications, staff, offices, customers etc…. A Pre-Pack Administration means that the old company goes into administration and the business is sold to a new limited company which you may own, be a part of, or may be owned by something else.
Most clients start off liking the idea of a company voluntary arrangement (CVA) as it sounds like a fair compromise to the creditors and allows the existing company to keep going, as setting up a new company can cause a lot of disruption. A CVA can also be useful in preserving licences, qualification’s or the reputation of a business needs to keep trading. A good example of a CVA is a power cable laying and servicing business that we helped and who wanted to keep the staff qualifications and certificates. They needed these in the existing company’s name to keep trading with national businesses.
The problem comes in trying to get enough creditors to agree to a CVA, as you need 75% of them by value. Plus there is a hiatus period between deciding whether a CVA is the right option and usually there is over a month or more before it is approved by creditors and put in place. In addition, creditors might support the CVA but propose modifications – typically if HM Revenue and Customs are over 25% of the vote, as they know they will decide the outcome and can place restrictions on dividends and directors salaries. If you don’t accept their modifications the CVA will not go through.
It also takes a lot of work to prepare a CVA document and this can cause delays.
A pre-pack seems like a more drastic option at first, but is in fact much quicker and more likely to guarantee the outcome for the directors. It can be done in a little over a week and means the new company is clear of the old debt, does not need 75% creditor approval and can sometimes be better for credit rating. A CVA would mean that the company is registered at Companies House.