Over our years of working within insolvency, we have been asked many questions by directors looking to save their company. When designing this website, we thought that it would be best to summarise those queries that have been raised most frequently. If you have a question that you would like to ask, please contact us. We will be happy to reply to you directly and keep this page updated.
What exactly is a Company Voluntary Arrangement ?
It’s a formal deal with a company’s creditors to pay off all or part of its debts over an agreed period. Generally, the situations where a CVA might be used are:
- to rescue a company that can’t pay its debts as and when they are falling due;
- to wind a company up in a controlled way without having first put it into Liquidation; and
- sometimes as an exit route from an Administration.
My company doesn’t have to pay all of its debts in full ?
Correct. If creditors agree with the proposal then they may accept repayment of just a fraction of their debts, if that’s the best that your company can do.
Really ? What if not all creditors agree ?
The insolvency law is very clear. Creditors get to have a vote and if there is a certain majority that agree with your proposal then those who said no must go along with the plan anyway.
What is the majority I need for creditors to accept a proposal ?
Creditors’ votes are in proportion to the size of their debts. So, if your company owes someone £1,000 and someone else £10,000, the person the company owes £10,000 has 10 x the voting power of the creditor owed £1,000. We need to have over 75% voting in favour of the proposal.
Is that 75% of all the creditors ?
No. It’s 75% of those creditors who bother to vote. If a creditor doesn’t vote, then they must go along with the decision of those that do.
My company owes me and another company I control a lot of money. Can I sway the vote in favour of approving the proposal ?
Initially yes. Both debts will count towards the 75% the company needs to achieve. The law, however, doesn’t want connected creditors, or “associates”, to outweigh the other creditors’ views. It makes sense, as otherwise a director might invent or increase a debt to push their company’s proposal through. We’ve seen it tried !
So, the law says that once the 75% majority has been achieved, a second vote must take place where connected creditors mustn’t count. This time though the company only needs a simple majority: more than half voting in favour.
The company owes its bank most. Can we renegotiate repayment of the bank’s debt ?
Not if the bank has security over the company’s assets. A secured creditor cannot have their position altered by a CVA. However, banks are very commercial and if we approach them with a plan, then they are likely to listen.
Is a CVA a legal process ?
Yes. The company’s proposal is lodged with the Court and it will need an IP, like Sadlers, to help the directors with the process.
The Company is under significant pressure now. Do we have time to draft a proposal ?
Yes. In the right circumstances we can apply to Court for a moratorium. This will stop creditors taking action against the company whilst we take a breath and decide what exactly the proposal should be. Alternatively, we may consider that putting the company into Administration first, is the right thing to do.
What will you do ?
At first we will act as the Nominee in relation to the proposal. The Nominee’s job is to review and comment on whether the proposal is likely to work and whether it’s fair to creditors.
So you will be acting for the company then ?
Not exactly. The Nominee will often help the directors with writing the proposal. It will be quite a lengthy legal document. However, the Nominee is an Officer of the Court and must balance what the directors want to achieve with the rights of creditors. Sometimes the Nominee will introduce the company to a solicitor who will help with the proposal and they will likely act for it.
What do you do after the proposal is drafted ?
The Nominee will send the proposal to creditors and set the time and date for creditors to vote. If the proposal is agreed the Nominee will usually become the Supervisor, but creditors can choose another IP.
What does a Supervisor do ?
The Supervisor’s job is to oversee the smooth running of the CVA.
What are the benefits for me and the company of doing a CVA ?
There can be many advantages over just winding a company up. If the company puts forward the “best” plan for creditors in its circumstances, then it may not have to pay all its debts in full. The company may also be allowed to keep some of its assets and choose which ones get sold, when and in what order.
During the CVA, the directors usually stay in control of the company and make all commercial decisions. Unlike other insolvency processes for companies, the Supervisor doesn’t have to write a report on the directors’ conduct prior to the CVA.
Can the creditors negotiate ?
Yes . A creditor can put forward a modification to the company’s proposal. They might suggest that the directors do something to increase its offer or just do whatever the company is already proposing quicker. The directors don’t have to accept a modification but, if they don’t, it’s likely that that creditor’s vote will be counted as a vote against the original proposal. If the directors are happy to agree to the modification then the other creditors will get to vote on it too.
What’s in it for creditors in accepting just some of their money back ?
Liquidation and, especially, Compulsory Liquidation is costly for creditors as the Government effectively takes a tax on money realised from selling the company’s assets and the Official Receiver will be involved before a Liquidator is appointed. This all adds up and creditors might not see much, if anything, in return even if the company has some assets. If the directors can put forward a deal that reduces costs and is a better outcome then creditors will probably accept it.
If the company puts forward a better deal than Liquidation do creditors have to accept it ?
Unfortunately not. It’s each creditor’s own decision and sometimes they can be uncommercial and ignore the money being offered.
Is there a down side to a CVA ?
Certainly. They’re not perfect. The fact that the company is in a CVA is recorded at Companies House, although it’s not publicised more widely than that. Sometimes the company will find it difficult to get credit for a while, whilst creditors build up trust again. We will explain the difficulties we can see in the company’s specific situation, as well as the benefits, when we meet.
What if the company doesn’t do what it says it’s going to ?
If the company doesn’t stick to the terms of its proposal then it may still be wound up, so it’s important that the directors know what they are getting the company into. However, if the company’s circumstances have genuinely changed the directors may be able to put forward a variation, or series of variations, to its proposal. Creditors will get to vote again every time the directors want to alter the company’s proposal.
Can we leave a debt out of a CVA ? It’s owed to me and I need the money back quickly.
Not without the agreement of the majority of the other creditors. The company will need to declare the debt and explain why you should be treated differently from everyone else. That you need the money is unlikely to be an acceptable reason, but a critical supplier may well be.
Do we have to tell all the company’s creditors that it’s going to propose a CVA ?
Yes. The directors should tell the company’s Nominee about all its creditors and they must notify them.
What if I miss a creditor out ?
Creditors who did not get notice of the CVA and a chance to vote are, perhaps surprisingly, still bound by it and can’t take action to recover their debt. They must accept the same proportion of repayment as the other creditors have agreed to. However, they can make an application to Court to have the CVA overturned if they can prove that the CVA is unfair to them.
The company doesn’t have many assets, but it does have a steady income. Can it do a CVA ?
Yes. There is no one-size-fits-all CVA and the proposal will be written to fit the company’s circumstances.
Do the shareholders get to have a say in whether the company does a CVA ?
Yes. After the creditors have voted, members of the company also have a vote to approve the CVA, although it’s rare that they disagree.
I don’t have a company. It’s a partnership, but a CVA sounds like a good idea. Can the partnership do one ?
If the partnership is a Limited Liability Partnership (LLP), yes. However, if it’s not an LLP the partnership can still do a Partnership Voluntary Arrangement, which is very similar.
I have guaranteed one of my company’s debts. Can that creditor ask me to pay it ?
Probably, yes. It is likely that a creditor who holds a guarantee from a director or third party will ask for the debt to be repaid outside of the CVA. This is, however, their decision and we’ll have to consider what your options are if they do.
A company that owes me money went into Administration, but now I’m being asked to approve a CVA. What is going on ?
A CVA is often used as an exit route from Administration and can be proposed by the Administrator rather than the directors. The Administrator must set out clearly why they think that the CVA will be the best option for the creditors. A Liquidator can do the same, if they think that the company shouldn’t stay in Liquidation.
Something we’ve not covered yet ? Send us a query via our contact page and we’ll answer you and add it to this section too.