There is a lot written about company voluntary arrangements (CVA’s) on the internet. They sound like a really good idea. You do not need to close and liquidate. You can keep going, keep your bank account and trading name and your creditors can also get something back and not see it all go down the drain in a liquidation and closure.
Sometimes if your company has qualifications and licences you can keep these as well. There is also no need for a report to the Insolvency Service on the directors’ conduct – an issue if the directors have had recent previous insolvencies.
So, why doesn’t everyone do a CVA and keep going when they hit trouble?
There are several hurdles to get through to make a CVA work. Some of the issues are:
Often, once the issues above are explained to directors they would rather liquidate and close and buy back the assets or use a pre-pack administration. It gives them more control over the situation.
I know I have written the negatives of CVA’s, but they do have their good points.
They allow a company to:
One good use of a CVA is to restructure a chain of retail shops. Normally all suppliers as essential suppliers continue to be paid apart from landlords. Landlords are then categorised into the type of lease they have and whether to keep a lease on the same terms, push through a rent reduction or break the lease because the retail site is no longer viable.
Meet with the directors and consider all the options. It has to be worth considering the alternatives such as Administration to at last rule them out.
If the CVA is the right solution start to prepare the CVA proposal. This can be a lengthy document setting out the business history, its current financial position and the offer to creditors. Often it also includes a cash flow showing an ability for the company to make monthly payments.
The Insolvency Practitioner then writes a report called a Nominees Report giving an opinion on the merits of the CVA proposal to creditors and whether it is fair to all parties.
The final signed documents are then sent to all shareholders (to have a shareholder meeting to approve the CVA or not) ant to all creditors to approve the CVA or not.
These meetings can be adjourned for up to 14 days.
If the CVA is approved a report will be filed with all creditors and shareholders as well as at Companies House.
A CVA is not usually as quick as liquidation or administration and as there is no protection from creditors in that period and this is often a reason why CVA will not work. Typically, even a quick CVA can take 4 to 6 weeks to be put together and agreed upon.
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Licensed Insolvency Practitioner