A CVA or Company Voluntary Arrangement is a legally binding agreement with your creditors to pay off a percentage of outstanding debt usually over a 3 to 5 year period
It must be agreed to by a least 75% of creditors value and is supervised by an Insolvency Practitioner
Advantages of a CVA
- It offers several important advantages:
- It enables your business to continue as a going concern whilst providing a period of time for the business to restructure and trade through its debt situation
- It allows for a percentage of historic debt to be repaid- typically reduced 25-100%
- It places a restriction on legal action for the recovery of debt whilst the CVA is being negotiated
- It puts the creditors in a better position than if the company went into liquidation
A Company Voluntary Arrangement-key points
A CVA applies to unsecured debts only-so mortgages and other debts secured against the assets of the business would not form part of it and must be separated out
It allows for the business to restructure by reducing overheads and operating costs
Creditors should not be shown preference, ie one paid a higher percentage than another, unless a creditor is material to the continuation of the business and thereby the ability to pay other creditors-for example a key supplier of materials
It allows for the termination of employment as part of restructuring
Winding up petitions can be prevented
Supplier contracts and lease agreements terminated
Unsecured debts are packaged together and one monthly payment is made to the Insolvency Practitioner supervising the CVA
