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Who takes control of a company during a CVA?

Company Voluntary Arrangements (CVAs) formally restructure a company’s debt to allow it to continue trading and escape liquidation. A CVA is an official rescue procedure that offers significant benefits for directors and companies, but also for creditors who receive more in repayment than if liquidation took place.

In many formal insolvency processes, directors lose control of their company on the appointment of a licensed insolvency practitioner (IP). CVAs are different in this respect, and this is one of the biggest advantages of taking this route if your company is eligible.

Who controls a company during a CVA?

A licensed IP must be appointed to negotiate with creditors, form a proposal, and put a CVA in place if the proposal is sanctioned. Once the arrangement comes into effect, directors take control of the company once again.

This is a huge advantage when a company is in financial distress. It allows the directors of what has typically been a profitable business to restore financial stability, increase sales, and direct the company back to a financially healthy position.

When do directors take control of their company during a CVA?

A licensed IP takes over initially, to negotiate and oversee creditor/shareholder meetings. Creditors need to vote in favour of a CVA by 75% (by debt value), and a majority vote of 51% of shareholders is needed to pass the new arrangement.

Once this has happened and the formalities are in place, the insolvency practitioner steps back and directors regain control of the company. The IP does have a further role in proceedings, as they also oversee the distribution of payments into a CVA. Directors have full control over how their company moves forward, however.

As long as repayments are made to a CVA, creditors cannot take any legal action to recover their debts as the new arrangement is legally binding on all parties. The only instance where an insolvency practitioner may need to get involved again is if the company cannot meet the new repayment terms at any point.

Is your company eligible for a CVA?

Company Voluntary Arrangements are suitable for businesses deemed viable by a licensed IP, following a detailed assessment of their affairs. Typically, a business will need to provide proof that it can keep up with the new payments, as if it doesn’t, creditors can once again take legal action.

If your company is a small or medium sized business with relatively straightforward affairs, or an owner/managed business, a Fast Track CVA may also be appropriate. This is a specific type of CVA where the process is speeded up, and quickly sets you back on track to improving your financial position over the longer-term.

If you would like more tailored information on CVAs, our specialist team at Fast Track CVA can help. We’ll provide clear advice on whether your company is suitable for a Company Voluntary Arrangement, and can offer you a free, same-day consultation.