Company voluntary arrangement also known as CVA is a legally binding procedure by which an insolvent company reaches an agreement with its creditors to repay its debts – in full or in part – at an arranged amount over an agreed period of time.
Under normal conditions, creditors receive between 25 per cent and 100 per cent of the debt owed to them. This is dependent upon what the company can afford to repay. The CVA term is typically between 2 to 5 years in length.
The CVA must be administered by a Licensed Insolvency Practitioner. The practitioner will examine the company’s history, reasons for failure and financial circumstances and will thereafter submit a plan to all the creditors, which will include full details of the company’s assets and liabilities, offers for repayment of debts, and the proposed duration of the CVA.
Three quarters of the commercial creditors must agree to accept the terms of the CVA proposal, after which the arrangement becomes binding on all creditors. The company then makes repayment on the agreed term (usually monthly or quarterly) directly to the insolvency practitioner who then distributes the payments to the creditors on a periodical basis.
While bound by the terms of a CVA, creditors may not start or pursue legal action against the company — this can be of enormous benefit to the insolvent business as it allows continued and uninterrupted trading free of the historic debts.
Once the arrangement has successfully implemented, the company returns to the directors and continues to trade as normal.