How is a CVA approved?

A CVA is a Company Voluntary Arrangement between a business and its creditors, which allows the business to repay its debts off over time whilst turning its business around.

How to start a CVA proposal
The CVA can either be started by the company directors or a Liquidator or Administrator, once the decision has been made to enter into a CVA the procedure needs to be run by a Licensed Insolvency Practitioner. During the process an appraisal of the company and its positioning in the marketplace will be made and a proposal will then be drawn up.

The CVA proposal
Once the proposal has been drawn up and filed with the court, the proposal is then sent to the creditors. The Insolvency Practitioner then holds a meeting with the creditors and the Directors of the business and the proposal can then be discussed. The creditors are then asked to vote on the proposal; to pass the CVA the proposal needs the support of 75% of the creditors.

The creditors can request for changes to be made to the proposal, however all changes will need to be approved by a vote. The shareholders will also be asked to a meeting and again asked to vote on the proposal, 50% will also need to vote in favour of the proposal.

Once the CVA proposal is agreed, it becomes legally binding to the creditors and the business, the proposal then takes effect and the business makes the agreed payments.

What are the repayments?
The repayments are usually calculated after working out what the business can actually afford to pay out each month. The CVA allows the company to either repay all or some of its debts over a period of time. Once the payment plan is in progress, any surplus money that the company makes can be used as working capital rather than going towards the repayment of debts.

As long as you do not breach the terms of the CVA you will be able to remain in control of the running of your business.

Some advantages of a CVA
The process allows structured payments to be made
It’s a cost effective insolvency solution which can be used to resolve financial difficulties
Constructive and positive way of dealing with insolvency and debt
The business can continue trading, whilst working its way out of debt
The business is given time to restructure the organisation so that it can return to profitability.
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