Company Voluntary Arrangement (CVA)

The primary purpose of a CVA is to allow a company that’s struggling with debts to continue trading while repaying its creditors in a more manageable way.  It provides a framework for the company to restructure its debts, reduce its liabilities and negotiate more favourable repayment terms with creditors. This breathing space could help you to regain financial stability and ultimately survive.

What is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) is a legally binding agreement between a company and its creditors, which can include HMRC, to repay all or part of its debts over an agreed period of time. It’s a formal insolvency procedure designed to help struggling businesses avoid liquidation by restructuring their liabilities and reaching a compromise with creditors.

When can a Company Voluntary Arrangement be used?

Your company could have the option of using a Company Voluntary Arrangement if it’s facing cash flow problems, high levels of debt or has outstanding tax owed to HMRC that it can’t pay.

It’s important to note that a CVA is a formal legal process and should be carefully considered in consultation with a licensed insolvency practitioner. We’ll help you to evaluate your company’s financial situation and future prospects, and guide you through the whole CVA process if this is the solution you decide on.

What happens in a Company Voluntary Arrangement?

1. Assessing viability: The first step is to assess your company’s financial situation and determine whether a CVA is a viable option. We’ll analyse its assets, liabilities, cash flow and it’s potential to return to profitability in the future.

2. Preparing the proposal: If a Company Voluntary Arrangement is possible, and you want to pursue this option, we’ll prepare a detailed proposal outlining the terms of the arrangement. This includes the proposed repayment plan, the duration of the CVA and any concessions sought from creditors.

3. Creditors’ meeting: We’ll arrange and hold a meeting of the company’s creditors, including HMRC, where the CVA proposal will be presented and discussed. Creditors will have the opportunity to ask questions, raise concerns and ultimately decide on whether to accept or reject the proposal.

4. Approval and implementation: If the Company Voluntary Arrangement proposal is approved by the required majority of creditors, it becomes legally binding. We’ll then oversee the implementation of the CVA, monitoring compliance with the agreed terms.

5. Supervision and reporting: Throughout the duration of the CVA, we’ll work with you to improve the company’s operations and financial performance. Regular reports will be provided to creditors, to show them you’re keeping to the agreed plan.

6. After the CVA: If the company and its directors successfully comply with the terms of the CVA and make the required payments, the arrangement will be completed. If it becomes clear that the company can’t meet its obligations, we can work with you to explore on of our other insolvency solutions.

The role of your licensed insolvency practitioner is crucial throughout the CVA process. We act as an independent intermediary between your company and its creditors and ensure transparency, fairness and adherence to the legal requirements.

Using a CVA to repay HMRC

Money owed in unpaid tax is often one of the biggest debts a company has. We’ll work with you to put together a compelling case for why a CVA is the right option, giving the best chance of HMRC accepting the proposal.

Interest and charges are frozen: The accrual of penalties and interest on the outstanding HMRC debt can be frozen. This prevents the total debt from increasing further.

Legal action is prevented: Once the CVA is in place, HMRC cannot pursue your company for the debt it relates to, as long as the terms of the CVA are met.

Payments can be more manageable: We’ll work with you to make sure the monthly contributions are based on what the company can afford, after taking into consideration your operating expenses.

Other benefits of a Company Voluntary Arrangement

You could avoid liquidation: The primary advantage of a CVA is that it allows you to continue trading while restructuring your company’s operations and finances, with the aim of coming out of debt and ready for a profitable future.

You can continue trading: This is crucial for preserving the value of your business. It’s also a benefit for creditors, who often get more of their funds back than if you were to liquidate and close the company.

You can restructure your debt: A CVA enables you to renegotiate and restructure the company’s debts with its creditors, which can significantly alleviate the financial burden, improving cash flow.

You could retain your reputation: Entering into a CVA maintains your relationship with stakeholders, such as customers, suppliers and employees. This can be beneficial for the company’s long-term success.

Ready to talk? Our licensed insolvency practitioners have helped to guide 100,000s of business owners through insolvency and into a more profitable future.

The potential drawbacks of a Company Voluntary Arrangement

A Company Voluntary Arrangement is as a form of insolvency procedure, which can negatively affect a company’s creditworthiness. Lenders may be hesitant to extend credit to a company undergoing a CVA, perceiving it as a higher risk. During the CVA period, there may also  be restrictions on taking on new company debt. 

Suppliers and creditors may be more cautious in their dealings with the company, even after the CVA has been completed. This could lead to stricter payment terms, for example.

The potential drawbacks of a Company Voluntary Arrangement

During a Company Voluntary Arrangement, the directors of the company retain control of the day-to-day operations of the business. You have specific responsibilities and liabilities that you need to be aware of and meet throughout the duration of the CVA.

Providing information: Directors must provide full and accurate information about the company’s financial situation, assets, liabilities and business operations to the insolvency practitioner overseeing the CVA.

Compliance with the CVA terms: Directors are responsible for ensuring that the company sticks to the terms and conditions outlined in the approved proposal. This includes making the agreed payments to creditors and implementing the promised operational changes.

Reporting and monitoring: Directors must regularly report to their insolvency practitioner on the company’s progress, its financial performance and any significant developments that may affect the CVA.

If directors fail to fulfil their duties during the Company Voluntary Arrangement period, or engage in misconduct, then they may face the termination of the CVA, leaving the company vulnerable to potential liquidation proceedings.

To explore a CVA as a solution for repaying your debts in a more manageable way, or for help on the ways we can support your business through financial difficulties, contact our experts.