Company Voluntary Arrangements (CVAs)

The company’s directors draft proposals (e.g. more time for payment/reduced debt/debt for equity) and nominate a licensed insolvency practitioner (“nominee”) as the proposed supervisor of the CVA proposal, responsible for its implementation. 

The directors then submit the proposal with a statement of the company’s affairs to the nominee. 

The nominee then has 28 days to report to the court on whether to put the CVA proposal to creditors and shareholders.    

If the nominee decides to proceed, the nominee starts the decision procedure to obtain creditors’ approval and gives 14 days’ notice to the company’s shareholders of a meeting of the company. 

The proposals are approved if at least 75% by value of creditors (excluding secured creditors) who vote are in favour, unless more than 50% of creditors of unconnected creditors vote against the proposals. 

The nominee reports to the court on the approval of the CVA by creditors.  Approval can be challenged in court on grounds of unfair prejudice or material irregularity. 

The nominee becomes the supervisor and implements the CVA proposal. 

The supervisor can ask the court for directions and decisions can be challenged in court. 

The approved CVA binds all creditors (except secured and preferential creditors who do not agree to be bound by it), including creditors not included in the decision procedure who would have been entitled to vote if they had been included.

On completion of the CVA (which can happen either when the company complies with the terms of the CVA or the company does not satisfy the terms of the CVA), the supervisor makes a final report within 28 days to shareholders and creditors. 

A CVA is a procedure under the Insolvency Act 1986 which allows a company to address its financial difficulties by coming to an agreement with its creditors to repay debts owed to them over a fixed period of time while continuing to trade.

A CVA is implemented under the supervision of a licensed insolvency practitioner.  The insolvency practitioner is known as the nominee before the CVA proposals are approved, and as the supervisor following their approval. 

A CVA binds all unsecured creditors of a company if the required majority of creditors in value terms vote in favour of the proposals by way of a decision procedure.  The shareholders of the company will also be asked to vote on the CVA.  A CVA does not affect the rights of secured creditors or preferential creditors unless they agree to be bound by the proposals.

No, a CVA is not the same as liquidation.  While both are formal insolvency processes, a CVA aims to rescue a viable company by restructuring its debts and allowing it to continue trading, while liquidation signifies the end of the company and the sale of its assets to try to make a distribution to creditors. 

For a straightforward CVA proposal, the cost of a CVA could be between £5,000 and £10,000 to prepare and seek approval from creditors. 

The costs involved can of course be significant higher than that range, depending on the complexity of the case and the specific insolvency practitioner firm chosen.  The supervisor’s fees (post appointment) are payable in addition. 

These fees are taken from the funds held within the CVA ahead of the agreed payments made to creditors, the CVA proposal having made provision for the supervisor’s fees (which will be binding following the approval of the SPA). 

A CVA typically lasts between 2 to 5 years.  The exact duration varies depending on the company’s specific circumstances and the terms agreed with the company’s creditors.  In some cases, a CVA can be extended beyond the initial duration agreed upon if the circumstances require it and the creditors agree to the variation.  At the end of the agreed term, any unpaid balance of remaining unsecured debts are typically written off, provided the company has successfully complied with the terms of the CVA. 

A CVA is a relatively informal insolvency procedure and does not need to involve court proceedings unless there are formal challenges to the CVA or its implementation otherwise gives rise to the need for litigation.  CVAs are therefore potentially cheaper than other, more formal, insolvency procedures and this may mean that more funds are available for distribution to the creditors.

It is possible to combine a CVA with an administration, which brings with it the benefit of the statutory moratorium whilst the company is in administration.  The administrator may then be able to come up with a suitable CVA proposal to put to creditors in relation to a proposed debt restructuring.

The main weakness of the CVA procedure is that there is no automatic statutory moratorium preventing creditors from taking action against the company.

Futhermore, CVAs are not binding on secured or preferential creditors unless they agree to be bound by the CVA proposal.

A CVA cannot facilitate a distribution of company assets to its members if that distribution would otherwise be unlawful under the Companies Act 2006. 

There is a growing perception of CVAs being used against landlords to unfairly reduce rental obligations but not otherwise taking meaningful action to address a tenant company's financial issues.

Where the company in a CVA is or has been involved in an adjudication process (common in the construction industry) there is no certainty as to whether the court will enforce an adjudication award made in favour of the company (with conflicting judgments made by the court).

A company is eligible for the CVA procedure if it is:

• A company registered under the Companies Act 1985 or the Companies Act 2006 in England, Wales or Scotland. 
• A company incorporated in a member state of the European Economic Area (EEA).
• A company not incorporated in an EEA member state, but which has its centre of main interests in a member state (not Denmark) or in the United Kingdom.
• A limited liability partnership. 

During the CVA process, you will receive information from the supervisor and be asked to provide information to the supervisor as follows:

• A copy of the proposal and accompanying paperwork to enable you to vote as to whether you approve the proposal (with or without changes/modifications you may propose before you agree to its approval). The proposal will contain details of the nominee’s and supervisor’s proposed remuneration and expenses.
• A copy of the nominee’s comments on the proposal and recommendation to creditors.
• Notification of whether the proposal was approved and any modifications made to it.
• A request for details of your claim and notification regarding dividend payments.
• Annual reports.
• Final report.

We acted for the joint supervisors of a Company Voluntary Arrangement (CVA) in relation to a recruitment company.  We were instructed to review the CVA proposal documents (which included HMRC modifications that were accepted and formed part of the proposal) and advise on what would constitute a full/successful implementation of the CVA.