A Company Voluntary Arrangement (CVA) is a legal agreement between a company and the company’s creditors. A CVA is usually utilized by insolvent companies, although other kinds of companies can also make use of this arrangement.
Over the past few years, company voluntary arrangements have become more and more popular. This is especially true for hospitality and retail industries, where it facilitates the restructuring of leases.
Is your company insolvent or on the verge of insolvency? If so, then a company voluntary arrangement might be just what you need.
So if you would like to learn more, then keep on reading and we will take you through everything that you will want to know!
What Is a Company Voluntary Arrangement?
A company voluntary arrangement is outlined in the Insolvency Act 1986. The proposal lets businesses come to a formal arrangement with their creditors over the repayment terms of debt.
Companies are also able to pay a percentage of the debt instead of the full amount.
This is a legally binding arrangement and lets the insolvent business repay a percentage of its debt over a period of one to five years. While the proposal is made by an insolvency practitioner, the current management needs to stay at the company during the CVA period. This is a very effective rescue option for insolvent companies.
Is a CVA Necessary for Insolvent Companies?
While a CVA is never necessary, it can certainly bring a lot of benefits to insolvent businesses. First off, company voluntary arrangements are very flexible and can be used by themselves or with other processes.
They can also be used early and the company doesn’t need to be officially insolvent. You also don’t have to involve the court when you are using a CVA and need only a majority instead of unanimity to enact the arrangement.
How Does a CVA Work?
There are several steps to enacting a CVA. First off, a liquidator, an administration, or the company directors propose the CVA.
Resources like companydoctor.co.uk can help you move a CVA along.
There is then a statutory moratorium. This stops suppliers and other lenders from taking more action against the company while the proposal is being negotiated.
The creditors will then meet. At least 75 percent of the creditors need to agree to the CVA in order for it to pass.
After the company voluntary arrangement has been approved, a report goes out to the court and the lenders. This report will give information on the votes that were cast.
The Importance of Knowing About CVAs
Hopefully, after reading the above article, you should now have a better idea of what company voluntary arrangements can do for insolvent companies. As we can see, this kind of arrangement can give an insolvent breathing room while it tries to pay its debt.
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