subject: How To Do A Company Voluntary Arrangement [print this page] Company voluntary arrangements (CVAs) are legally binding agreements between companies and their creditors that outline in detail a plan for settling outstanding debts. The advantage of such an arrangement is that it is a way by which company directors can remain at the helm of their company and steer it away from liquidation proceedings.
Essentially, a CVA allows the company to repay its creditors (including tax creditors) over time. The company can continue operations and use its restructured liabilities (book debts) as working capital instead of for debt repayment. Clearly company voluntary arrangements like this are preferable to the compulsory liquidation proceedings that might ensue if a company cant repay its debt due to a temporary downturn in the economy.
If your company has a basically sound structure but is facing difficulties of this nature, it may be advisable to seek an expert opinion on company voluntary arrangements. In a nutshell, CVAs require the approval of 75% of a companys creditors. This can be the biggest hurdle to overcome and careful pre-planning must be done before putting forth your proposal. When approved, all creditors are bound by the agreement, regardless of how they voted on the proposal.
The first consideration is to establish a strong argument that your company can remain or become profitable if Company Voluntary Arrangements are made. Then a proposal must be submitted to the court preventing any creditor from taking action against the company for a period of 28 days. After that, you can safely notify your creditors of you intentions without fear of reprisal.
Company Voluntary Arrangements are often the best solution for all parties concerned. A CVA is a creditors best chance of full repayment and a companys best chance to remain solvent and prosper. Moreover, the CVA is a private arrangement, so the company need not fear negative publicity. It can go back to business as usual?without the pressure of repayment of large debts during a period of stagnant earnings.
It should be noted that a CVA can be applied for even after insolvency proceedings have been initiated, either by the creditors, as is the case in Compulsory Liquidation or even in the case of Voluntary Liquidation, if a change in circumstances demonstrate the companys ability to adhere to the terms of the CVA and the creditors?agree to it.
As is the case with company liquidation, Company Voluntary Arrangements should be handled by professionals in the field from the very beginning. Even if a CVA is an option that is being considered as a fall-back plan, consultation with a professional before an emergency occurs can prepare you in advance.
by: Mike Simister
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