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When a company faces insolvency, there are a number of different options available. These include requesting a moratorium, seeking a Creditors’ Voluntary Liquidation and, as we’ll explore in more detail here, pursuing a Company Voluntary Agreement (CVA).
Each has its own specific merits and is more or less suitable for certain situations; while online guides can be helpful for gaining some background understanding on the subject, it’s almost always necessary to seek the advice of a professional CVA practitioners for further help.
CVA defined
A CVA is a legal agreement, or contract, between an insolvent company and its creditors. The contract covers how the company’s debts will be sorted out, in a way that often allows the company in question to continue trading.
Compared to other solutions to insolvency, a CVA is one of the least damaging to a company’s future; it allows the company to continue to focus on day-to-day operations without many of the pressures associated with insolvency proceedings.
When can a CVA be used?
Although CVAs are clearly a highly attractive option for insolvent companies, they aren’t always appropriate solutions. A CVA can be considered a suitable option when a company is insolvent but retains a core business offering that can still be saved. Oftentimes, a company will first go into administration and then later propose a CVA.
There are multiple ways that a company can enter into a CVA; it will normally be proposed by the directors of a company, but it can also be proposed by a Liquidator or Administrator if they believe that it’s the most beneficial route forward for all parties concerned.
CVA eligibility
All companies that are either insolvent or contingently insolvent can propose a CVA. Proposing a CVA does not, however, mean that it will be granted.
The Insolvency Practitioner overseeing the process must believe that the company is likely to be able to continue trading in a profitable manner in the future, and they must believe that the company is likely to return to solvency as a result of the agreement.
The proposal will then go to a vote, in which at least 75% of the company’s creditors must approve of the agreement. If there are connected creditors, such as family members, then there will be a second round of voting without those creditors, which must achieve a majority of over 50%.
Why choose a CVS
If a CVS is proposed, permitted by the Insolvency Practitioner, and then receives a favourable vote from the creditors, the chances of the company in question of surviving insolvency are massively increased.
The company will be allowed to return to daily operations and relieved of historic liabilities. It will in turn ease restrictions on capital, allowing the company to continue in a less inhibited manner.
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