What Is a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is a legally binding agreement between a company and its creditors that can be used to avoid insolvency. The CVA is a process designed to allow the business to continue trading, pay off debts and pay back its lenders over a period of time. A knowledgeable and experienced Insolvency Practitioner (IP) is usually appointed to facilitate a CVA, who will be responsible for negotiating the details of the arrangement and obtaining the necessary approvals from each creditor.
The CVA process is essentially a compromise between creditors and the company, as it allows the company to pay as much of its debt as it can afford over a set period of time. It is often used as an alternative to administration or liquidation as it allows the company to continue trading, pay back its lenders and still maintain control of its affairs. A CVA is also typically considered to be a better option for creditors than either of the other two options, as it allows them to recover some of their money.
Under a CVA, the company and creditors typically agree to a payment plan over a set period of time, usually 3-5 years. This agreement usually includes a repayment structure based on an offer from the company and is agreed to by the creditors. The payment plan is typically based on the company’s projected future income and might include selling off certain assets or restructuring the business to free up cash. Any property that the company has can also be used as collateral, which will give the creditors additional security.
It is important to note that a CVA is binding on all parties involved and must be approved by both the company’s directors and the creditors. The directors of the company must also ensure that it can adhere to the agreement, usually by taking on additional debt and refinancing existing debt to cover the repayments. It is worth noting that a CVA can be a very effective way for a business to avoid insolvency, but it should only be used as a last resort.
In conclusion, a CVA is a legally binding agreement between a company and its creditors that can be used to avoid insolvency. The CVA process is designed to allow a company to continue trading, pay back its lenders and still maintain control of its affairs. The agreement usually involves a repayment structure based on an offer from the company and is agreed to by the creditors. It is binding on all parties involved and must be approved by both the company’s directors and the creditors. A CVA can be a very effective way for a business to avoid insolvency, but it should only be used as a last resort.