A Company Voluntary Arrangement (CVA) is a process that allows for a company to be able to pay off its bills and debts over a set and agreed-upon period of time between the company and creditors if the company finds itself insolvent.
The time it takes for a CVA to be completed and successful varies depending on how much money is owed; sometimes, it could be around 3-5 years. CVAs are also marginally cheaper too, so it’s a good option to consider if your business finds itself close to or is insolvent.
A CVA is acquired through an insolvency practitioner who will determine the amount of debt to be paid and the timeline for when it must be paid. Once the proposal has been finalised, the insolvency practitioner will send the proposal to the company’s creditors and get the creditors to vote on it. If 75% of the creditors by value of claim agree, then the proposal has been successful, and the company must keep to the terms of the proposal by paying the amount necessary until the payments are paid to the creditors through the insolvency practitioner.
What happens during a CVA?
A lot of things can happen during a CVA. Though it’s a straightforward and flexible process, there are still many things to keep in mind when undergoing a CVA.
For a start, the company director will still remain in charge, allowing the director the opportunity to stay in charge of the company, which can offer an extra amount of confidence to the CVA process. Furthermore, customers and consumers of the business do not need to be formally informed about the CVA, ensuring that the process is private and only includes the company and the creditors as well as any others who need to be involved. The focus is all directly on the company’s director, to focus solely on the company during this time.
Additionally, any legal action is ceased, including the creditors, who cannot take legal action against the company as long as the terms of the CVA are upheld. However, there are ways for the creditors to potentially challenge a CVA, which can be done after 28 days of the CVA going into place. The two ways of a CVA being challenged is for creditors to prove if the CVA is unfairly prejudiced or if there was material irregularity involved.
Another instance where legal action may be taken is if the company does not keep up with payments that have been agreed on, ensuring that it’s imperative to make the timeline in which payments must be made is realistic.
Overall, the process and workings of a CVA are worth it if you find your company in or at risk of insolvency. It’s a helpful and valuable way to help repay debts to creditors and keep the company afloat. While also keeping the company’s management the same all throughout the time the CVA is happening, ensuring for a secure and familiar team throughout the process of the CVA.