Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is a legal process which gives the directors of a company in financial difficulties protection from its creditors. The company needs a viable business going forwards so it can make a proposal to its creditors (and shareholders) to compromise or settle its debts either in whole, or in part and usually over a period of time.
The proposal is a contract between the company and its creditors and shareholders. Once it has been approved by the creditors and shareholders, creditors cannot take proceedings against the company for the recovery of their debts. The directors remains in control of the company’s assets and trading.
John Hedger can act as nominee and assist the directors of a company in putting together a proposal.
Meetings of creditors and shareholders will be held in order for the proposal to be voted on by those persons. If 75%, or more, by value of those voting, of the creditors (and 50% of the shareholders) approve the proposal, the proposal will be deemed approved.
The implementation of a CVA will give the company an opportunity to restructure and return to profitability and will usually repay its creditors from future profits or a lump sum payment from a third party.
Once the proposal is approved by creditors and shareholders of the CVA, the insolvency practitioner who acted as nominee usually becomes the supervisor of the CVA, whose functions include ensuring that the company complies with its obligations under the CVA proposal and paying dividends to creditors.
Typically, a CVA will last between 3 to 5 years. If the company fails to comply with its obligations under the CVA, it is likely that the supervisor will be required to petition for the company to be placed into liquidation.