If the time ever comes where your company can’t meet it’s debts, a CVA (company voluntary arrangement proposal) could be the best option available to relieve pressure from creditors. If this sounds like something you could be interested in to relieve your debts, read on to learn more about CVA’s and how they can help your business:
What is a CVA and How Can it Help Your Business
The reason for a company voluntary arrangement is to propose a deal with creditors. If your deal is agreed, this will prevent creditors taking any enforcement action against your company. You could make a number of agreements, for example:
- The existing debt could be paid over 4 years, for example, in interest free installments.
- A percentage of your debt is paid in installments.
A CVA proposal will then be drawn up by the directors with help from a solvency practitioner, which will be forwarded to the creditors. This must be done within a month of being appointed.
A meeting will be arranged to invite creditors to vote in favour of or against the CVA.
To get a CVA, it needs to be approved by creditors who are owed at least 75% of the debt.
Your business will then be solvent and can start trading again. You’ll make the scheduled payments to creditors through the insolvency practitioner until they are paid off. If you don’t get the 75% vote from creditors your company could face voluntary liquidation.
When and How does a CVA Come Into Force?
The moment a CVA comes into force is the date the company’s creditors approve a CVA proposal (those who are owed at least 75% of the debt). At least 50% of the creditors need to be unconnected to the company to vote.
What Effect Does a CVA Have on Creditors?
When a CVA has been approved, the CVA binds all of the creditors of a company. This means:
- Creditors who voted against the CVA must comply.
- Creditors that were present at the CVA proposal but did not vote must comply.
- Creditors that did not attend the meeting must comply.
Once a creditor is bound by a CVA, they are prevented from taking steps against the company because of the terms of the CVA prohibit.
Can a Creditor Challenge a CVA?
A creditor who was entitled to notice of the CVA proposals, and feels unfairly treated due to the CVA, can possibly apply for a court order that can revoke the CVA. They could also be entitled to more meetings to talk about revised CVA terms.
What Will Happen if a Debtor Company Doesn’t Comply to the Terms of the CVA?
In most cases, the terms outlined in the CVA will deal with this. Here’s what could happen:
- The supervisor could petition for the company’s liquidation.
- The creditors of the debtor company cease to be bound by the CVA, which would let pursue the debtor company for the balance of the debt.
- The supervisor must distribute any assets he has in partial satisfaction of the company’s debts.
If you have debts and are under a lot of pressure from creditors, a company voluntary arrangement could be the answer you’ve been searching for!