Company Voluntary Arrangement

Thinking of a Company Voluntary Arrangement? What Are The Options?

A Company Voluntary Arrangement (CVA) is a recognised legal procedure, under the provisions of the Insolvency Act of 1986. It allows a company's directors to retain control of the company and enables the directors to have binding agreements with the creditors of the business, detailing how debts and liabilities will be approached under the various provisions of the Insolvency Act.

A Company Voluntary Arrangement allows a company which has experienced cash flow difficulties over a period of time to repay its liabilities either fully or partially over a number of years. Once these have been restructured (including any monies owed to HMRC) any money thus generated (e.g. book debts) may be used as an active source of working capital, rather than paying the old debts.

A majority of three quarters of the voting creditors will need to approve a Company Voluntary Arrangement in order for the CVA to be enacted. Then all the company's creditors who were sent notice of the meeting will be bound by its terms, no matter how they voted.

Under certain circumstances a business may be able to apply to the court to "ringfence", and thus protect, its assets before approaching its creditors and asking them to approve the Arrangement.

A Company Voluntary Arrangement may be considered a much better alternative to liquidation.

A Company Voluntary Arrangement proposal will generally be accepted by creditors if they see that it will provide a viable solution. In most cases the bank will normally be secured (as are any finance companies) so they will therefore stay outside of the CVA. All the pre CVA creditors will have their debts in the arrangement and will be paid out of monthly contributions. The beauty of this is that working capital can now be derived from the balance of the proceeds after the provisions of the CVA have been made.

The important thing is to act early; the options which are available now may not be available later on.

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