What is a Company Voluntary Arrangement (CVA)?

The process of Voluntary Arrangement is a further result of the Insolvency Act 1986.

Although only seven sections cover their formation, describing what they are is very much dependent on your experience of them. At the time of writing, the procedure is being used regularly when dealing with retail businesses and their attempts to renegotiate leasehold commitments with landlords. In the future, this will undoubtedly change.

My definition of a CVA is simply:

The amendment of contractual terms of historic creditors to enable a better return to all creditors following an agreement by an excess of 75% of voting creditors calculated by value.

Easy right?

As with many insolvency processes, the devil is in the detail. For the company to demonstrate that its proposals are likely to provide a better option for creditors, they will have to provide a great deal of information, including up to date balance sheets (statements of affairs) complete with details of creditors, a viable business plan and cash flow forecast. The proposal must also explain how creditors will be affected. This will usually include creditors receiving a percentage of their historic claims as a dividend over a period of up to five or more years. Please note that some CVAs will allow for creditors to be paid in full within a much quicker time frame, so creditors will need to review the detail before formalising their strategy.

The proposal will provide a voting date and, if 75% of voting creditors (by value) agree, then the remaining 25% are also deemed to agree.

When does it begin? Is there a moratorium?

The legislation does provide the ability for a moratorium to be applied for, but this is rarely enacted. If there was a call for a standstill, then the likely outcome would be an administration application where a moratorium is part of the application.

So, if you receive notice of an application for a CVA then there is nothing to stop you from commencing enforcement action! A responsible insolvency practitioner would have taken the possibility of enforcement into account when advising the company. You are very unlikely to find such an assertive approach works to your advantage and it is likely to add simply to costs. I am not a solicitor, but I cannot see a court being too pleased with allowing enforcement to take place for the benefit of one creditor, at a time when all creditors were trying to seek a solution that would benefit them all equally.

What should I do when I receive notice of a creditors’ decision? How much will my vote be worth?

If you have not commenced enforcement, then you will be an unsecured creditor with a vote equal to the value of your claim at a creditors’ decision point. The questions to ask are:

  1. What is the size of my loss? Is it the value of a schedule of invoices or a loss arising from a much wider contract?
  2. Is my claim significant, i.e. is it likely to exceed 25% by value of voting creditors?
  3. If I am mid-enforcement, what is the value of the goods I hold?

Hopefully the answer to question 1. Is self-evident. You have either provided a product or service and issued an invoice that has not been paid, or you have a contract to provide a product or service which you are obliged to supply for the duration of the contract. The loss in the first example is crystallised and certain, whereas the loss in the second is an estimate now but can be determined in due course.

In respect of question 2, if you do have a large claim then you could vote to reject the proposal, on as it is not in your best interests. This makes you particularly powerful in terms of enforcing changes to the proposal and perhaps making it more advantageous to you.

And finally, if you have commenced enforcement then your starting point should be to treat the goods you hold as security, have them valued and vote for the unsecured element. Be careful with this last bit to ensure that the insolvency practitioner managing the process (called the nominee) is aware of the goods you are holding. It might well be that they are worth more to him than they are to you, at which point they would be wanting to negotiate with you and potentially settle all or part of the claim.

In all cases, if you are not sure, you need to ensure you seek specialist advice.

Of course, the one interesting thing about the notice is that it provides a schedule of the company’s assets, which could well be very useful!

Can we proceed with our enforcement?

Once 75% by value of creditors have approved a voluntary arrangement, even if you voted against it, then your debt is bound within the arrangement and you cannot proceed to enforcement.

If the voluntary arrangement does not proceed, then you have a list of potential assets for enforcement, provided of course that liquidation does not immediately proceed after the rejection of the CVA.

Jeremy Frost,


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