Company Voluntary Arrangements ("CVA")

Where an insolvent company remains viable and is able to survive by obtaining breathing space from creditors, the CVA procedure is a useful rescue tool available to directors.  In simple terms, this procedure will allow the directors to retain control of the company without the need to appoint an Administrator.  This has the added advantage of avoiding Administration costs.

The directors or company will put forward a proposal to creditors which will allow the company to continue and achieve a greater return for creditors than would be available if the company were wound up.  The agreed proposal on approval will, in essence, form a contract between the company and its creditors.

Proposals can be flexible but must comply with statutory requirements.  The licensed insolvency practitioner’s role is that of an ‘umpire’ throughout the process.  Usually a CVA proposal allows for a restructuring of the business and partial payment of unsecured liabilities from contributions made out of future profits from continued trading.

A CVA cannot affect the rights of secured creditors who retain their rights of action under the terms of their security.

For a proposal to be accepted by creditors, it will require 75% approval from those voting in a decision making process before it can take effect.  The proposal may be accepted as drafted or with modifications so long as they are acceptable to all parties to be bound by the arrangement.

On approval, the licensed insolvency practitioner (‘IP’) becomes the Supervisor of the arrangement and has a responsibility to ensure that:-

- The company complies with the terms of the arrangement

- To realise assets pledged to the arrangement

- To agree the claims of and make a distribution to the creditors

One advantage of the CVA process is that interest on debts is often frozen on approval.

On the company complying with its obligations under the terms of the proposal, the Supervisor will give notice to the company’s creditors and members that the arrangement has been fully implemented following which he will obtain his release.  On conclusion the debts of the company are compromised and the dividend to creditors is made in full and final settlement.

The Enterprise Act 2002 provided the ability for small, eligible companies considering a CVA to obtain a moratorium giving protection from legal action brought by creditors.  Unfortunately, this procedure is seldom used due to its complexity and potential personal liability issues for the nominated insolvency practitioner.