A CVA (Company Voluntary Arrangements) or PVA (Partnership Voluntary Arrangements) is an arrangement taking the form of a proposal between a company and its creditors in satisfaction of some or all of its liabilities. A Licenced Insolvency Practitioner acts as Nominee in assisting the directors or partners with preparing the proposal and submitting a report on the proposal to court. A creditors’ decision process is held to consider and vote on the proposals. Shareholders also have the opportunity to vote on the proposals.
The proposal is prepared for the company using financial information supplied by the directors and often from the company accountant. A cash flow forecast will need to be prepared which demonstrates that the company can make regular contributions into the CVA as well as maintain its ongoing overheads. An outcome statement is also prepared to give an illustration of the amount that creditors would be paid (after costs) by the end of the arrangement. Creditors vote on the proposals which are approved if more than 75% by value of the company’s creditors vote in favour. The Nominee then becomes the Supervisor to oversee the implementation of the arrangement.
A CVA or PVA may be suitable when:
- A company needs to remain in its present form, for example if it has a long trading history it wants to maintain, or its customers would not trade with a new/phoenix company.
- It is insolvent and has a build-up of historic liabilities to at least 2 creditors
- The business is viable, there are orders in the pipeline
- Breathing space is needed to pay its debts over a period of up to 5 years by paying monthly or quarterly contributions or in some cases a one off lump sum settlement
- The directors want to continue to trade and remain in control of the company
If the company maintains its obligations and meets its payments, the arrangement concludes successfully and the balance of any unpaid debt will be written off.