A company voluntary arrangement (CVA) is an agreement between an insolvent company and its creditors to repay or reschedule its debts.
It is a hugely effective process where a company has found itself in financial difficulty due to a one-off issue (a large bad debt for example) or has successfully turned itself around but is struggling to deal with its historic debts.
The company puts forward its suggestion of how it would like to deal with its debts.This is often by way of a regular payment from its profits but the process is very flexible and so the company can offer anything it thinks its creditors would be likely to accept. This may include realising an asset which the company no longer needs and handing over the proceeds or refinancing to release cash from fixed assets to make a one off payment.
Whilst repayment of debts in full is not a requirement of a CVA, it is a consensual process and in order for it to be approved a company requires a majority of shareholders and 75% or more of voting creditors to vote in favor of the proposals put forward. The proposals may be modified or rejected by creditors if they do not feel they are being given a fair deal. If modifications are put forward, they will need to be approved by the company in order for them to be accepted.
One of the advantages of using a CVA is that the current directors retain control of the company throughout the process. If successfully completed the company will be able to continue to trade following the end of the process without the additional costs and loss of goodwill that may arise following the appointment of an insolvency practitioner to run the business.