Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) is an insolvency procedure that allows a compromise or other arrangement with creditors under Part 1 of the Insolvency Act 1986, which is implemented under the supervision of an Insolvency Practitioner (known as the Nominee before the CVA is implemented, and once approved then known as the Supervisor). The arrangement will be binding on creditors if the requisite majorities vote in favour of the proposals. The arrangement does not affect the rights of secured or preferential creditors unless they agree to the proposals. Small companies have an optional moratorium period before any CVA is put into place.

A CVA is commonly used to help aid ailing companies which have an underlying business that could be rescued if proposals could be made to deal with historic debts. Provided that action is taken early enough a CVA may assist an insolvent company that needs to find time to pay creditors in full or to partly pay creditors in full and final settlement by way of a compromise of the debts outstanding.

A CVA is a contractual agreement between a company and its creditors whereby early action can be taken at the first sight of distress and dissenting creditors can be effectively dealt with provided requisite majorities for approval are obtained.

The CVA proposal is normally that of the directors, although such a proposal may occasionally be put forward by an Administrator to exit administration or very rarely by a Liquidator to exit liquidation. Therefore, in a directors’ proposal they are likely to work with the Insolvency Practitioner setting out the terms of the compromise proposed with creditors.

The proposal must name the Insolvency Practitioner who will act as Nominee of the proposed CVA. The Nominee must report to the Court as to whether or not in his opinion the proposal has a reasonable prospect of being approved and implemented and, if so, whether or not in his opinion the creditors should be given the opportunity to consider and vote upon same.

During the course of a CVA the company will remain in the control of its directors. The proposal will require the company to make contribution payments to the Insolvency Practitioner (as the Supervisor) over a specified period in the proposal of commonly 3 to 5 years so that creditors are paid as agreed the percentage of the debt owed to them over the period.

A proposed CVA is considered and voted on by the company’s creditors by way of a number of permitted procedures.

The approval of a CVA proposal (or any modification of it) by the company’s creditors requires a vote in favour by at least 75% (by value) of the creditors that vote thereon. There is further condition that no more than 50% (by value) of any creditors who vote for the proposal (or a modification thereof) are creditors who are unconnected with the company.

A CVA comes into force at the time when the company’s creditors approve a CVA proposal made in respect of the company.

Once approved, the CVA binds all the unsecured creditors of a company who were entitled to vote on the CVA proposal. That means that a CVA binds:

• Creditors who voted against a CVA.
• Creditors who received notice of the CVA proposal but who did not vote.
• Creditors who would have been entitled to vote but did not receive notice of the CVA proposal, despite being entitled to be notified of it.

Once bound by a CVA, a creditor is prevented from taking steps against the company that the terms of the CVA prohibit. Typically these will be drafted to prevent the creditor from recovering any debt that falls within the scope of the CVA, other than through an agreed mechanism set out in the CVA.

The Nominee will normally become the Supervisor of the approved CVA. A report is filed in Court on the outcome of the decision. If the CVA is approved no further steps need to be taken for it to take effect (unless there are specific conditions in the proposal) If the company is in administration or liquidation the Court may need to give directions to stay or discharge such insolvency procedures.

The Supervisor will agree creditors’ claims and pay the dividends set to be paid to the creditors. The Supervisor is required to report annually to creditors on the progress made in the CVA and to submit a final report thereto upon the completion.

If the CVA is successfully implemented then the company will be returned to its directors’ free from unpaid balances owed on the debts owed to the creditors bound by the Arrangement. The Supervisor will issue a Certificate of Completion and file a final report at Companies House.

If a company fails to successfully implement a CVA proposal then the terms of the CVA will deal with this is most cases. Often the proposal will provide that upon CVA failure:-

1. The CVA Supervisor may petition for the company’s compulsory liquidation from monies retained throughout the CVA for that purpose (if ever necessary) or
2. The creditors of the company cease to be bound by the CVA, thereby allowing them to pursue the company for the balance of the debt then due or

• The CVA Supervisor must distribute any assets that he holds in partial satisfaction of the company’s CVA debts.

A Partnership Voluntary Arrangement (PVA) is akin to a Company Voluntary Arrangement (CVA). However due to the personal liability of each partner usually each partner may require an Individual Voluntary Agreement (IVA) to protect their personal assets as each partner is liable for the total partnership debts in full.