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CVA Assessment

Company Voluntary Arrangement

COVID-19 SUPPORT: IF YOU HAVE BEEN AFFECTED BY COVID-19 WE HAVE SUPPORT PROCEDURES IN PLACE

How does a Company Voluntary Arrangement work?

A Company Voluntary Arrangement is a formal insolvency process enabling a compromise to be entered into between a company (debtor) and its creditors, based on a vote passed by a majority of creditors greater than 75% of those voting on the proposal.

But for small-to-medium-sized enterprises (SMEs) – particularly those agile owner-managed businesses – a CVA can be accelerated to help turnaround the fortunes of a viable business currently hampered by sudden trading difficulties – such as those brought about by the COVID-19 pandemic.

An accelerated CVA is known as a Fast Track CVA and ringfences viable businesses from creditor pressure; allowing them to trade with the breathing space to get back on their feet again. Debts are consolidated into more simple repayments through palatable instalments, and relationships with creditors and suppliers are maintained through the agreement that they will eventually be paid – as opposed to liquidation procedures which would see your business close and creditors receive very little, if anything at all.

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Will my creditors accept the CVA?

A fast-track company voluntary arrangement will be devised by an insolvency practitioner and must be reviewed by the debtor company’s directors. If the directors are happy with the terms proposed, the fast-track CVA is then submitted to the court and all of the company’s creditors will receive an individual copy outlining the CVA proposal and how they will be repaid.

The CVA must be accepted by the company’s shareholders and creditors before it becomes a legally binding agreement. Firstly, 50% of the shareholders must approve the CVA at a shareholders’ meeting.

Secondly, once the shareholders have agreed on the terms of the CVA, a creditors’ meeting will be held – usually this is a virtual meeting – whereby 75% of the company’s creditors (by debt value) must agree to the CVA for it to be passed. This is the crucial stage of the CVA and in some cases, the creditors might reject the terms of the CVA if they are not satisfied with the proposed value and/or schedule of their repayments.

The insolvency practitioner can negotiate with creditors to try to get the CVA approved. It can be a sensitive situation and a skilled IP can often get the CVA over the line. Creditors are often mistaken in thinking they will be able to recoup a higher proportion of funds in alternative ways but the truth is that a CVA often represents their best option for recouping monies owed. For example, if the debtor company went into liquidation rather than a CVA, the unsecured creditors would be unlikely to receive any repayment at all. For this reason, a solid and well-proposed CVA – which provides at least part-payment of the company’s debt – should be considered and accepted.

Sectors using Fast Track CVA

Retail

Technology

Hospitality

Construction

Financial Services

Experts in Rescuing Businesses

Businesses across the UK are struggling but many of them are viable if given the opportunity to survive – and this is what a Fast Track CVA can do.

The process avoids a lot of the expense and disruption of traditional CVAs and can make the difference between success and failure. We can quickly make a judgement on whether a business is eligible following a free consultation with directors. If this is the case, a Fast Track CVA will enable the company to continue trading, employing staff, and working with its supply chain, whilst creditors will recoup more through a CVA than they would if the business went into liquidation.

We have a wealth of experience in negotiating with creditors to outline the benefits of a Fast Track CVA as their collective support is key in achieving CVA approval. Maintaining positive relationships with suppliers and customers is an essential part of a Fast Track CVA and this is an area we specialise in.

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