A CVA (Company Voluntary Arrangement)is a voluntary arrangement to repay debt to creditors via an IP (Insolvency Practitioner) – basically it’s an IVA (Individual Voluntary Arrangement) for companies. It has a lot of similarities with an IVA but there are a few things to keep in mind, but here is a little information that you may need, hopefully not any time soon!
Just What Is A CVA Anyway?
A CVA can be applied for by either the agreement of all the company directors, the legal administrator or the companies appointed liquidator. An Insolvency Practitioner must be contacted as the IP must implement the agreement by drafting a proposal to the creditors.
The acceptance process for a CVA is the same as the personal IVA acceptance process; which is that the creditors take a vote on whether or not they will accept the CVA proposal but, as long as 75% (by debt value) of the creditors vote to agree with the proposals terms then the CVA will be accepted.
The good news that you may consider a bonus is that even if there were one or two awkward creditors who didn’t vote your waythey will still be legally bound to the CVA terms.
After you have the approval of the creditors for the repayments of what your company owes them, there is that little task of actually making the payments which may seem confusing but this is how it works in a CVA.
Firstly the payments made are usually monthly and will be a single monthly payment however the payments don’t go straight into the hands of the creditors. The payment is first sent to the Insolvency Practitioner who deducts his/her slice of the pie and then the remaining is sent to the creditors, who are (by this point) probably money hungry.
What is worth noting is that the monthly payment the company make is put into a fund that is controlled by the Insolvency Practitioner for the benefit of the company creditors.
The Application Period
There are different periods of time given to make the repayments, depending on the circumstances it is typically up to five years but could be considerably less, if you haven’t been too naughty.
Payments made under the accepted CVA terms are accepted by the creditors in full, which typically means that the company in a CVA will not be expected to pay its debts in full.
There are of course little advantages such as having a little bit of the debt knocked off; one of the main advantages of the Company Voluntary Arrangement is that the business of the company will still be able to continue under the control of the directors. When in troublesome circumstances such as debt etc, sometimes this isn’t at all possible for example in liquidation the company will cease to trade completely and in administration it is usually the Insolvency Practitioner that controls the company until the business and assets are sold.
Ryan Gordon is a script writer who blogs about finance-related topics.