What is a Company Voluntary Arrangement?
A company voluntary arrangement is often referred to as a CVA. If you’re searching for a CVA meaning, then you’re in the right place.
A company voluntary arrangement, or CVA, is a method of keeping a company running despite being in debt. The main element of a CVA is that companies agree on a payment plan with their creditors, allowing them to spread the payments over a specified period. This legally binding agreement cannot be used by everyone.
Your creditors can include a range of entities, from suppliers and employees to HMRC. Read more about how we can help you with HMRC arrears.
In addition to giving directors more time to pay debts, CVAs also provide directors with an opportunity to assess the way that the company is managed and identify where adjustments may be beneficial.
Do you need an insolvency practitioner for a CVA process?
Yes, you absolutely need an insolvency practitioner to support you through the process of your CVA. Licensed insolvency practitioners are there to guide you and offer advice throughout any formal insolvency process.
When searching for a licensed insolvency practitioner, you should take the time to chat with multiple practitioners. While their end goals will be the same, the routes they take may vary. Their costs will also vary, and you should ensure that you get a full proposal in writing with costs included before you appoint anyone.
We’ve had phone calls from many directors asking for help as they appointed a cheap liquidator who is now pursuing them for thousands more. This financial pressure can be extremely hard to deal with as a director who is already struggling with money. You can check if the liquidator is a member of the Insolvency Practitioners Association.
Who can apply for a Company Voluntary Arrangement (CVA)?
Company voluntary arrangements aren’t suitable for everyone, as there are criteria that must be met.
Facing insolvency – To qualify for a CVA, your company must be facing insolvency. Insolvency can be defined in a couple of ways, such as not being able to pay debts when they fall due or your liabilities being worth more than your assets.
Company directors must act quickly when dealing with insolvency, as creditors may choose to use a winding-up petition against the insolvent business.
Chance of survival – To qualify for a CVA, the appointed insolvency practitioner must be able to judge that your company will be able to recover and continue trading after the CVA is completed. This will require a lot of evidence, and you must have acted responsibly as a director.
Evidence of cash flow – Before an insolvency practitioner can begin the process of a CVA, you must be able to provide evidence of cash flow during the period. These projected cash flow forecasts show that your company will likely be able to pay the outstanding debt that you owe.
Creditor agreement – For a CVA to begin, at least 75% of the creditors must agree to it. If more than this amount vote against the idea, it cannot go ahead. You will need to consider other options, such as a creditors’ voluntary liquidation or members’ voluntary liquidation. The vote for a company voluntary arrangement (CVA) may occur in a creditors meeting.
If you’re not sure whether you’re eligible for a CVA, reach out to Director First. We’ll assess your current circumstances and help you make a decision that will benefit you and your company.
How long does a CVA last?
CVAs can vary in length depending on your company’s needs. Usually, a CVA can last anywhere between 2 and 5 years. This can vary based on the number of creditors you owe, how much money you owe and how much money your struggling company is projected to make.
How much does a CVA cost?
The cost of a CVA process varies depending on the debt value and number of creditors. Ensure that you get all costs in writing before starting the process.
What’s a CVA proposal?
A CVA proposal is a legal document that highlights the details of the arrangement. It will contain information such as the liquidator’s details, company history, employees and financial information. The proposal will also contain information regarding the creditors and the money they are owed.
Directors are not expected to write their own CVA proposals. An insolvency practitioner will take care of this for you. They will take on the role of communicating with creditors, taking some of the pressure off you.
What are the advantages of a CVA?
There are many CVA advantages, but as we mentioned before, they aren’t suitable for everyone. Remember that each of these advantages will only be available if all of the terms and conditions of the CVA are met.
- Reduces creditor pressure when dealing with financial difficulty
- It gives businesses more breathing space instead of having to turn straight to liquidation
- Makes company debts more clear – monthly payments to creditors
- Reduces the risk of legal action from unsecured creditors while the CVA is in place
- Existing directors remain in control of the limited company and work to improve it
- Works in the best interest of your company’s creditors
What are the disadvantages of a CVA?
- Company credit ratings will be affected
- CVAs are often lengthy procedures
- Occasionally CVAs will fail still
- Secured creditors can still push legal actions such as company administration
Perhaps you think that your business will be perfect for a CVA? We can assess your situation and formulate a plan with you. Contact our experts at Director First today for professional guidance.
