Company Voluntary Arrangement
The original company continues to trade protected by a legal moratorium whilst a recovery plan is prepared for its viable continuity. This includes the return of a proportion of the debt (e.g. 30% over 5 years) to creditors supervised by an Insolvency Practitioner (the Supervisor).
Benefits of a CVA
- No interest payments or supplementary “finance charges”;
- Renegotiation of leases and other contracts; as Landlords would rather have you occupying the building on a reduced rent than having an empty unit upon which they are responsible for the local business rates. (We are finding that Landlords are sympathetic and will work with us to assist the company to continue.)
- The redundancy payments of insolvent companies could be made from the National Insurance Fund subject to the qualifying criteria of the individuals;
- The Directors remain in control, although the arrangement is supervised.
- No investigation into Directors’ conduct or Statement of Affairs.
A CVA proposal must offer a greater return to creditors than they would obtain from liquidation; often scheduled over five years and/or geared to profits. The arrangement must be agreed by a 75% majority in value of those creditors that vote on the day. A CVA usually takes 6-8 weeks to be accepted & recorded in Court. Until the CVA is concluded any default of its terms may result in liquidation.
The Company Voluntary Arrangement process requires a realistic business plan with financial projections for creditors’ approval. In the event that a CVA is rejected by creditors, recovery by a Pre-Pack Administration may still be possible.