A Company Voluntary Arrangement, referred to as a CVA, is a formal procedure available for a Limited company or LLP wishing to avoid liquidation and has become a valuable option for rescuing an insolvent company.
A CVA is a contractual arrangement between a company and its creditors which may involve the delay of debt repayment and reduction of liabilities. This arrangement lasts for a fixed term under the administration of the insolvency practitioner acting as a supervisor and a successful conclusion will result in the settlement of debts with creditors whilst continuing to trade.
A CVA can, with creditor agreement, be flexible to accommodate a company's own circumstances and often combines capital restructuring, an orderly disposal of assets to release capital, surplus profits and third party contributions.
In most circumstances, once a CVA is approved creditors are unable to charge interest and penalties on the balance due to them and the company is protected from legal action for the recovery of the debt. This is one of the main advantages of a CVA and helps stem the overall debt owed. To decide whether the CVA goes ahead, a creditors’ meeting is called and a vote is taken. Creditors representing at least 75% of those who vote need to vote in favour of the CVA proposal for it to go ahead.
Once approved by creditors the CVA binds all creditors who were entitled to vote at the meeting or would have been entitled to vote at the meeting had they had notice of it.