A Company Voluntary Arrangement, or CVA, is a formal method of negotiating a sensible agreement with creditors.
With a CVA the existing Company continues to trade. There is no need to set up a new Company through which to trade and therefore no need for the Directors to purchase the assets of the Company. Cashflow wise, and perception wise, the CVA is often an attractive alternative to Liquidation.
The main benefits of a CVA are:
The offer typically takes the form of a monthly contribution from the Company into a bank account administered by a Licensed Insolvency Practitioner. Distributions are then made on a regular basis to the creditors in relation to all of the debts which existed prior to the CVA being agreed.
Whilst in a CVA the Company is protected from its creditors who cannot commence or continue any legal action in relation to the debts included in the Arrangement.
HMRC are very supportive of this procedure and are likely to accept a sensible offer which gives them a better return than the alternative which is often liquidation. Outside of the CVA, the offices of HMRC with which Directors and Company Accountants normally have to negotiate are extremely limited in what they are able to accept.
HMRC accept the majority of properly drafted CVA Proposals which can give the Company up to 5 years to make repayments.
The offer must be accepted by 75% of creditors, by value, and by more than 50% of independent, non-associated creditors.
It is also often the case that the CVA will allow the Company to write off a significant percentage of its debt.
A typical CVA may, for example, offer to pay creditors 50% of what they are owed over a 5 year period. At its successful conclusion the remaining debt is completely written off.
In order for the CVA offer to be acceptable to most creditors, including HMRC, it typically has to fulfil the following criteria:
Click here for a flowchart highlighting how the CVA process will typically work.