Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) is a formal procedure used by a company in financial distress to come to an arrangement with its creditors. A CVA permits the company to remain in business and usually seeks to produce a higher return to creditors as a whole compared to the use of any other form of insolvency procedure.

It is a method of achieving Parliament's preference for a business to continue as a going concern and to save as many jobs as possible. The CVA was introduced in the Insolvency Act 1986 but despite having many advantages, not least in that it is relatively cheaper and that the directors are able to run and operate the business rather than an Insolvency Practitioner (IP), its use has not been as widespread as anticipated.

Moratorium for small companies

Perhaps one of the reasons it is little-used is due to the not unreasonable belief that on the announcement of CVA proposals to the creditors, they will take action to protect their position above those of other creditors. The Insolvency Act 2000 however introduced a new procedure to allow small companies to obtain a moratorium, thereby preventing creditors from taking action for an initial period of 28 days whilst the proposals are being considered.

It only applies for small companies though; those who meet two out of the three following criteria:

  • Turnover less than £5.6 million
  • Balance sheet total less than 2.8 million
  • Fewer than 50 employees.

There is no such moratorium protection for larger companies. For this reason, many larger companies are put into administration first which gives them protection from creditors and then to make CVA proposals.

Appointment of nominee

Although the directors may propose the arrangement, an IP acts as both a nominee of the arrangement and as supervisor of the scheme once agreed by the creditors.

The nominee reviews the proposals and prepares a report to the court setting out the proposals, the state of affairs of the company and whether a meeting of the company and creditors should be held.

Meeting to approve proposals

A meeting is then held at which approval from the creditors is sought. Approval of the proposals is required by over 75% in value of the creditors present (in person or by proxy) in order to bind all creditors to the arrangement. Creditors cannot then commence action against the company to recover money owing unless the company fails to abide by the terms of the CVA.

On approval of the CVA, the appointed supervisor sends a copy of the chairman's report of the meeting to Companies House.

Ending the CVA

The CVA comes to an end once it has been completed, or when it fails, upon which the supervisor notifies the Registrar of Companies within 28 days.

JMW Solicitors

JMW Solicitors can provide expert help and legal advice to management teams or to insolvency practitioners acting as nominees or supervisors in a company voluntary arrangement.

For further information, please call us on 0345 872 6666 or complete the online enquiry form.

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