Company Voluntary Arrangement (CVA)
A CVA allows your company to continue trading whilst repaying debts over an agreed period. Keep control of your business and protect it from creditor pressure.
What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement, often referred to as a CVA, is a method of keeping a company running despite being in debt. If you're searching for a CVA meaning, you're in the right place.
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, but for those who qualify, it can be a lifeline.
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.
Advantages of a CVA
- Reduces creditor pressure when dealing with financial difficulty
- Gives businesses breathing space instead of turning straight to liquidation
- Makes company debts clearer with structured monthly payments to creditors
- Reduces the risk of legal action from unsecured creditors whilst 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
Do You Need an Insolvency Practitioner for a CVA?
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 speak with multiple practitioners. Whilst 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.
Warning: Beware of Cheap Practitioners
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?
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. The vote for a company voluntary arrangement may occur in a creditors' meeting.
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. We can provide you with a clear breakdown of expected costs.
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.
Things to Consider
- Company credit ratings will be affected
- CVAs are often lengthy procedures
- Occasionally CVAs will still fail
- Secured creditors can still pursue legal actions such as company administration
Think a CVA Could Work for Your Business?
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.
Frequently Asked Questions
Common questions about Company Voluntary Arrangements
What is a Company Voluntary Arrangement (CVA)?
How long does a CVA last?
What percentage of creditors need to agree to a CVA?
Do I need an insolvency practitioner for a CVA?
Will a CVA affect my credit rating?
Can secured creditors still take action during a CVA?
Get Your CVA Proposal from Director First
Don't wait until it's too late. Early intervention provides more options and increases the chances of a successful CVA.