Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is a formal arrangement with the company creditors, typically over a 5 year time period, which allows a business to continue to trade whilst repaying its debts at an agreed rate.
As long as 75% of the company creditors vote for the arrangement all remaining creditors are by default bound by the agreement and are frozen.
Payments into the CVA are made on a regular basis and distributed to creditors at the agreed rate, although it is possible if a lump sum payment could be raised that the term could be shortened.
Positives of the Company Voluntary Arrangement (CVA)
- It is legally binding between the company and its creditors.
- It protects the company. No further action can be taken against the business by its creditors once agreed to.
- It is a common and accepted way for dealing with debt and does not carry the 'negativity' associated with company liquidation or company administrative receivership.
- Trading can continue.
- Company creditors can claim tax relief against bad debts.
- Creditors acknowledge that they will receive a reduced amount in lieu of the total due.
Negatives of the Company Voluntary Arrangement (CVA)
- If creditors representing 75% of the total value of money owed do not agree to the proposal it cannot go ahead.
- If during the term of the CVA it fails, the company can still go into company liquidation or company administrative receivership.
- A record of the CVA will appear on the company credit file which will impact on the ability to obtain future credit.
