CVAs (Company Voluntary Arrangements) are formal agreements between financially unstable businesses and their creditors to form an informal resolution plan for restructuring debt. CVAs provide long-term solutions for financial difficulties and can assist businesses in recovering. A CVA insolvency practitioner (IP) reviews your company and recommends a Company Voluntary Agreement (CVA). They then prepare a proposal that creditors vote upon.
At the Creditors’ Vote, all unsecured creditors have an opportunity to consider and assess the proposed CVA Proposal and question its directors and insolvency practitioner.
Prior to creditors voting on the CVA proposal, an IP will prepare a draft CVA proposal, including details about the company, its assets and debts, as well as financial forecasts that illustrate how CVA will advance creditors’ interests.
Draft proposals must then be presented to the court, and signed copies are distributed to all unsecured creditors for approval. A creditors’ vote must also take place, and, if 75% by value of the creditors who participated in its decision procedure approve, that proposal can then be accepted into law.
However, if those voting against a CVA include more than 50% by value of all creditors who were admitted for voting and who cast votes against it, then it becomes invalid and cannot be passed. All creditors must be informed of this rejection and given 28 days to challenge it if needed.
Once a CVA has been approved, all legal action against the company, such as winding-up proceedings, are placed on hold until the implementation has taken place and payments to creditors as agreed under its terms have begun. Unfortunately, this can take anywhere from eight weeks on average for successful CVA implementation.
IPs will then call a meeting of all creditors and shareholders to discuss their CVA proposal, providing all creditors with the chance to voice their opinion and question directors or insolvency practitioners about it.
After a company has been placed into liquidation or administration, a CVA insolvency practitioner convenes a creditors’ meeting for them to hear from insolvency practitioners as to why their company became insolvent and how best to help recover from it. Creditors also gain insight into what steps will be taken moving forward.
Insolvency procedures vary in handling creditors’ meetings and are designed to keep creditors up-to-date on what is happening with their debts. For example, some sessions allow creditors to select an insolvency practitioner; other arrangements allow voting on whether a recovery plan or liquidation can go forward, providing details as to the next steps that need to be taken.
Suppose a company enters either a statutory winding-up procedure or liquidation under an administration order. In that case, the CVA insolvency practitioner will inform creditors and invite them to attend a creditors’ meeting at least three weeks in advance – providing details on both processes and procedural changes.
To be eligible to vote at a creditors’ meeting, you must lodge details of your debt or claim with the liquidator and complete voting documents. The chairperson will decide whether your claim qualifies as voting material and, how you may cast your vote if accepted.
Before attending a meeting, the voluntary administrator will typically give you some proof of debt and proxy forms to complete and return. You may also be permitted to vote through another person who isn’t an employee of the company on your behalf.
At the meeting, creditors can grill directors about their approach to dealing with the company’s financial difficulties and vote on whether to remain with it or for liquidation to be ordered by the court. A majority (by the value of debts owed) must approve resolutions at such meetings.
Administrators should then write letters to creditors and draft reports of proceedings that will be sent to the Companies House. These reports typically provide a thorough overview of how the administration was carried out as well as an evaluation of whether it met all creditors’ and court’s requirements.
CVAs were once used primarily in niche industries such as retail trade, accommodation and food and drink; however, CVAs have increasingly seen use in more difficult sectors and companies with substantial commercial property liabilities.
The CVA meeting’s Chairman provides an Overview Report that gives an in-depth account of what occurred during the meeting, who attended and how each party voted. This also serves as an opportunity for any issues the company might have had with how proposals were written or any deficiencies that should be rectified to be raised at this stage.
Your insolvency practitioner will work closely with you to ensure this part of the report is as accurate and detailed as possible. Furthermore, the Overview Report is an excellent opportunity to ensure all creditors have received all relevant documentation about a CVA and what it entails.
Additionally, it is worthwhile to comprise some key details about your company and its debts here to keep the CVA proposal straightforward and understandable for readers.
Ensure that the Summary Tables and Clauses include references to actual creditor numbers rather than their pay/PS return amount; this will ensure they remain clear and concise, lessening any chance for challenges to them.
Critics often criticise the CVA process for being too lengthy and difficult to follow due to all of its complex legal jargon and legalistic clauses, which make understanding it is challenging for some creditors.
However, these challenges can be surmounted. Initially, it is indispensable to keep in mind that an insolvency practitioner’s main responsibility isn’t necessarily working directly with creditors; their main job should be representing them constructively and impartially while acting as supervisor for a CVA process.
CVA is one of the most frequently utilised insolvency procedures available. It offers businesses a way to remain solvent while creditors can restructure their debts. As it’s flexible, it can also be used for debt restructuring, capital restructuring and the orderly disposal of company assets.
Throughout a CVA process, directors remain in charge of their businesses. Therefore, they are accountable for creating and implementing strategies which improve performance while taking account of any legal actions taken against them as long as they remain in charge.
Creditors may object to a CVA if they believe it to be unfairly prejudicial or there have been any irregularities in its proceedings. They can also go directly to court if they disagree with its terms.
At a creditors’ meeting, creditors are given at least 14 days’ notice so they may review and vote on the proposed CVA plan; to be approved by creditors, over 75% must support it.
Once creditors approve, these proposals become binding for all the company’s creditors. So long as creditors pay their agreed amounts on time under these proposals and maintain their payments schedules accordingly, then the company should remain solvent; any shortfall relating to creditors under a CVA will be written off.
At a creditors’ meeting, CVAs must typically be approved by a simple majority vote of creditors present and voting on them. Therefore, it’s imperative that this step go smoothly so all creditors are fully satisfied before giving approval of a CVA plan.
After the creditors’ meeting, a Supervisor will be appointed to oversee the running of a CVA. They must submit an annual report to Companies House detailing its progress. In addition, this individual should inform all creditors as to its progress while also providing any requested information.