Steps towards a CVA

Steps towards a CVA

Businesses that face difficulties may choose to go down the route of a Company Voluntary Arrangement or CVA.

This is a legal agreement that codifies the repayment of debts to creditors in a structured way but allows the business to continue trading with a better cashflow.

There are however a number of steps that the company has to go through, with the help of a licenced insolvency practitioner, to put a CVA in place and give the directors some much needed respite from creditor action.

The first and arguably most important step is for directors to realise that there’s a problem. It can’t be overstated that simply burying their head in the sand when a business is in trouble is the wrong move and can lead to directors facing action for wrongful trading.

Directors need to be realistic and understand when they need help and at the same time be open and receptive to any methods of easing the pressure.

Next the directors will need to choose a licenced insolvency practitioner to guide them through the process. It’s important to remember that some companies online may present themselves as insolvency specialists but in fact are little more than middlemen. Choosing someone that has the right qualifications and that the directors like and trust is vital at this stage.

The IP will then conduct an initial appraisal to assess whether the company’s situation is conducive to a CVA. They may indeed agree that this is the best course of action or may suggest other alternatives that better match the situation that the firm finds itself in.

The IP will need to be appointed by the directors, preferably in a minuted board meeting to allow them to commence work.

The IP will then produce a draft CVA that defines the problems and produces a solution that the business will need to implement. The directors will need to read and understand fully the CVA and be confident that the terms are ones that the company can stick to.

Again realism is needed here and if there are any doubts that the agreement is achievable then they need to be voiced here. By the same token the practitioner will need to be convinced that the company can live up to its obligations under the agreement.

Once the directors and insolvency practitioner are happy with the draft agreement they will submit this to the court. At this point signed copies of the agreement are sent to all creditors and this will need to happen at least three weeks before the initial meeting.

The creditors meeting will be held at which they will consider and vote upon the proposal for the CVA. It is possible that the creditors may send a proxy to the meeting or may vote by post. At this meeting the creditors will get the chance to question the directors and IP about the proposal and may request changes to be made before agreement. The creditors will then take a vote as to whether they agree with the move towards a CVA and this needs to be passed by 75% (by debt value) to obtain acceptance.

Similarly at the shareholders’ meeting there will be the opportunity to question the terms of the Voluntary Agreement and assess the realism involved. Again the shareholders will take a vote and this time 50% of the shares eligible to vote must agree for the CVA to progress.

Once the meetings have taken place the Insolvency Practitioner will need to produce a report for the court and creditors of the results including the vote outcome and attendees. This needs to be done within four days of the end of the meeting.

At this point any legal actions against the company will be held and the business will begin to see the benefits of a CVA. Once a CVA has been agreed then creditors will stop collection actions. The insolvency practitioner will become the supervisor of the CVA and will ensure that the business runs according to the agreement.

The penultimate step in the CVA is for the company to be run to the terms of the CVA. The business will be in the hands of the directors still but they will have regular payments to make and may have other terms to comply with.

It can’t be overstated that the directors must comply with the agreement or face the prospect of the supervisor returning to court to have the business wound up.

The CVA may last a matter of months or more likely will continue for a number of years with the company making monthly or quarterly payments for distribution to the creditors.

At the end of the term the final step in the life of a CVA is for the company to be formally exited from the CVA. At this point the business will hopefully be in a much better place with the company able to trade and thrive into the future.

The CVA process is a structured one and it is vital that directors take full and complete advice before choosing how they will proceed. Getting in touch with a licenced insolvency practitioner right at the start of the process will give the directors the confidence that they are making the right decision and avoid them making costly missteps on the road to business recovery.

Contact Walsh Taylor for first class advice.

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