If a company has a viable future, the directors accept the need for change, are prepared to fight for its survival and appropriate funding can be found, then a Company Voluntary Arrangement (CVA) can be a powerful tool. Through avoiding liquidation a CVA focuses on paying creditors what you can afford out of future profits.
What is a CVA?
A Company Voluntary Arrangement (CVA) is a company rescue and restructuring option which can help ensure the survival of your company.
A Company Voluntary Arrangement (CVA) is a formal arrangement between a company and its creditors. The arrangement highlights that at present the company cannot pay its debts but will be able to out of future profits. The business will pay towards its debts for an agreed period and once completed all remaining debts are written off.
Vital Components of a successful Company Voluntary Arrangement (CVA) are:
- A viable business that can return to profitability.
- Commercially structured – can succeed without over promising creditors
- Introduction of appropriate levels of working capital in addition to the restructuring of debt.
- Management accepting that change is necessary.
- Determination & hard work is essential throughout the period of the CVA
- Directors need to use an experienced Insolvency Practitioner.
- Cautious forecasting.
Who can propose a CVA?
A CVA may be proposed by the directors of the company. When the company is in administration, the administrator can propose a CVA. A CVA can only be proposed if a company is insolvent or contingently insolvent.
How long does it take?
In practice it often takes 7-10 weeks although the summary below is possible if all of the required information is available from the outset.
Summary of the CVA mechanism.
It is also worth pointing out that the CVA is not a panacea for your company; but it is a very powerful framework for change and protection of a distressed but viable company. In reality although difficult to propose and get approved, getting the CVA approved is the easiest part of a rescue/turnaround– making a turnaround work is much more difficult and needs professional help. The CVA should aim to:
- Maximise creditors’ interests.
- Preserve viable but distressed businesses.
- Preserve economic activity and save jobs.
- In time return value to the creditors.
- Provide a real prospect of a return for shareholders