Company Voluntary Arrangement (CVA)

What is a Company Voluntary Arrangement?

A Company Voluntary Arrangement (CVA) is a legally binding agreement under the Insolvency Act 1986 between a company and its creditors to repay some or all of its debts over a fixed period, usually from future profits, so that an otherwise viable business can keep trading and the directors stay in control.

A CVA is the rescue procedure for a company that is fundamentally sound but held back by historic debt. Interest and pressure from creditors are frozen while the company makes agreed monthly contributions, and any part of the debt not repaid at the end is written off. It is one of the two main company rescue options, alongside administration, and the one that lets directors keep running the business.

How do you know a CVA is right for your company?

A CVA suits a company that is insolvent, meaning it cannot pay its debts as they fall due, but is viable, meaning it can trade profitably once the burden of its old debt is dealt with. The test is whether the underlying business works and whether the company can afford realistic monthly contributions from its future trading.

The situations where a CVA tends to be the right route are these.

• The business is profitable, or would be, once historic debts are restructured and interest is frozen.
• HMRC arrears for VAT, PAYE or corporation tax have built up but current trading is sound.
• You want to keep control of the company and avoid handing it to an administrator or liquidator.
• Creditors are likely to receive more from continued trading than from an immediate liquidation.
• The company has valuable contracts, staff or goodwill that closure would destroy.

How does a Company Voluntary Arrangement work?

A CVA follows a set statutory path from proposal to completion, in which a licensed insolvency practitioner acts first as the nominee who reviews and lodges the proposal, then as the supervisor who runs the arrangement once creditors approve it. The directors keep control of the company throughout, subject to the terms of the arrangement.

The main stages are as follows.

• The proposal. The directors, helped by the insolvency practitioner, draw up a proposal setting out what the company can afford to pay creditors and over what period.
• The nominee reviews it. The insolvency practitioner acts as nominee, checks the proposal is realistic and reports to court that it is fit to put to creditors.
• The 75% creditor vote. Creditors vote on the proposal, and it is approved if creditors representing at least 75% by value of those voting agree, which then binds all unsecured creditors.
• Monthly contributions. The company pays agreed monthly contributions into the arrangement, usually for three to five years, while continuing to trade.
• The supervisor runs it. The insolvency practitioner becomes supervisor, distributes the contributions to creditors and reports on progress each year.
• Completion. Once the agreed payments are made the arrangement ends, any remaining balance of the included debt is written off and the company is free of it.

How much does a Company Voluntary Arrangement cost?

A Company Voluntary Arrangement typically costs from around £5,000 to £10,000 plus VAT in nominee fees to set up, with the supervisor's ongoing fees then paid from the monthly contributions across the life of the arrangement. These are indicative ranges to confirm at a free consultation, not fixed prices, because every company and proposal is different.

The fees are not an extra cost on top of the debt: they are met from the contributions the company was going to pay into the arrangement anyway, so creditors receive what is left after the practitioner is paid. Because the company keeps trading, the cost is spread over the term rather than needing to be found up front.

Figures are indicative and confirmed in writing before you commit. Ask us for a clear estimate for your company.

What happens to directors in a CVA?

In a CVA the directors keep control of the company and continue to run the business, which is the main advantage of the procedure over administration or liquidation, but they must stick to the terms of the arrangement and keep the monthly contributions up to date. The supervisor monitors the company but does not take it over.

Two points matter most to directors personally.

• You stay in charge. Unlike administration or liquidation, a CVA leaves the directors running the company, so long as the arrangement is honoured.
• Overdrawn director's loan account. How an overdrawn loan account is treated is dealt with in the proposal itself, and we explain the options before you put the proposal to creditors.
• Personal guarantees. A CVA binds the company, not you personally, so any debt you personally guaranteed is not automatically covered and remains your responsibility unless the guaranteed creditor agrees otherwise.

What happens if a CVA fails?

If a company cannot keep up its CVA contributions the supervisor can end the arrangement, and the company will usually then move into administration or a creditors' voluntary liquidation, because the protection of the arrangement falls away and creditors are free to act again. A realistic proposal at the outset is the best protection against this.

This is why we only recommend a CVA where the monthly contributions are genuinely affordable from the company's trading. Setting contributions the business cannot sustain helps no one, so we model the figures carefully with you before any proposal goes to creditors.

How long does a Company Voluntary Arrangement last?

A CVA usually runs for three to five years, which is the period over which the company makes its monthly contributions to creditors, and the arrangement can be put in place within a few weeks of instructing the insolvency practitioner once the proposal is agreed. The term is set to raise a fair return for creditors while remaining affordable for the company.

Protection from the included creditors begins as soon as the arrangement is approved by the 75% vote, not at the end of the term, so the company feels the benefit of frozen interest and halted creditor pressure from the start.

How does a CVA compare with the other options?

A CVA is the right procedure when a company is insolvent but viable and the directors want to keep control while repaying debt from future trading, but it is one of five main options and the best choice depends on whether the business is viable and whether it is solvent. The table below sets out where each one fits.

Not sure whether your company can be rescued or should be closed? Call us and we will tell you honestly.

Why choose NTF for a Company Voluntary Arrangement?

NTF Corporate Solutions is a boutique insolvency practice whose Company Voluntary Arrangements are handled by named practitioners, James Kaye and Nick Morgan, who are licensed by the Institute of Chartered Accountants in England and Wales. You deal with the same named practitioner as both nominee and supervisor, so the person who designs your proposal is the one who sees it through.

As part of the NTF group, we have helped company directors since 2009, we build proposals that creditors can accept and the company can actually afford, and the first conversation is free, confidential and without obligation. If a CVA is the right step for your company, we will guide you through the proposal, the vote and the arrangement calmly.