Company Voluntary Arrangement (CVA) for Limited Companies

CVA or company voluntary arrangement is a Government Legislation which was introduced in 1986 to help struggling limited companies stay solvent and afloat during difficult trading periods. Where their current due debts and demands far exceed their available financial resources, (this is classed as ‘trading whilst insolvent’).

In a CVA the aged debts of the company which would normally have made the company insolvent and therefore liable to be legally wound up, can be cumulated together and basically off-set with very favourable payment amounts for 5 years, thus keeping the company solvent and trading legally.

A CVA is a lifeline if a company has mounting debts which jeopardize the financial stability of the company or more importantly VAT and tax arrears which threaten to wind up the company and seize it’s assets for sale at auction to recover such arrears.

VAT, NI, Tax and PAYE arrears can be added to a CVA and large proportions of the debt written off as long as the returns are up to date.

CVA Criteria

• 3 or more business creditors
• Unsecured liabilities of £15,000.00 or more
• Must be a limited liability company registered in the UK
• Reasonably afford to contribute a minimum of £250.00 per month towards the cumulative company debt

CVA positives

• A CVA can legally write off a large percentage of company debts
• Bounce back loans can be included
• A CVA has no bearing on future dealings with HM Revenue & Customs and is seen as acting in a responsible manner
• A CVA can stop impending court action, debt recovery and bailiff attendance
• A CVA is only available to limited companies
• The CVA takes approximately 6-8 weeks to conclude, so the company basically gets a payment holiday until the CVA proposal is accepted or declined by the companies creditors
• No further pressure from creditors
• Continue to trade without the worry of liquidation voluntary or compulsory, HMRC love letters, bailiff harassment
• Dramatically reduce aged liabilities

CVA negatives

• A CVA will hinder a companies ability to obtain credit in the short to medium term
• Secured debts, such as commercial mortgage arrears or any other secured credit cannot be added to a CVA
• 75% of the companies creditors must agree to the proposed CVA for it to be binding
• Additional terms may be added to the proposal by the creditors

The CVA Process

Upon receipt of your completed CVA application pack with accompanying documentation, we then immediately contact the companies nominated unsecured creditors advising that the company is entering into a Company Voluntary Arrangement and that all enforcement action must cease immediately and any further communication must be made via the insolvency practitioner (IP).

From the point of submitting your completed CVA application to us no further payments should be made to your companies nominated creditors what so ever until the CVA proposal is agreed or declined by the nominated creditors.

An interim court order is put in place to protect the company from enforcement action.

A draft proposal will be drawn up by our insolvency practitioner (IP) between the company and its creditors and a monthly amount, affordable to the company is proposed to be split between the creditors.
At least 75% of the companies creditors must agree to the proposed CVA, once agreed, the CVA proposal is approved and the CVA becomes legally binding.

All interest and further charges are then frozen.

A comparison must be seen to be in the creditors best interests, compared to ‘winding up’ where the companies assets would be sold at auction, so the total amount offered in the CVA proposal over 5 years must be worth more to the creditors than forced sale of goods at auction, ‘winding up’.

Once the CVA proposal is approved by the companies creditors, the agreed proposed monthly amount must be paid religiously every month for 60 months (5 years) directly to the CVA supervisor who will distribute the appropriate amount to each creditor per month.

During the 5 year period, as long as all payments are made without default, the creditors cannot contact the company in any way or enforce any further debt recovery action, if they do then they are acting illegally and are liable to prosecution, any communication what so ever from the creditors must be made via the CVA supervisor.
After the 5 year period is over and all 60 payments have been made without default, the remainder of the debts are completely written off by the creditors (in almost all cases).

CVA Default

• If the monthly payment cannot be paid for whatever reason then the company must notify the CVA supervisor immediately and explain in full the reasons why, some lea way will normally be granted
• If payments are numerously missed without regard and the CVA supervisor is not notified then the company stands to be wound up immediately by the creditors and it’s assets sold at auction

CVA documentation required:

• Completed and signed CVA application form (can be signed electronically)
• Business bank statement (within last 3 months)
• Proof of nominated unsecured creditors (invoices/red letters/statements)
• Proof of company address (utility bill, within last 3 months)
• Proof of identity, Director (copy of driving license, passport)
• Mortgage statement (if applicable)
• Proof of rent payments (if applicable)
• 1 months accounts

*Original documents will be returned to you by recorded delivery.
*For more information on a CVA and its benefits Contact Us

Business Users Only: Business Debt Solutions Ltd work on behalf of company directors and share holders of limited companies. Business Debt Solutions Ltd is a Business to Business Service and does not represent Domestic Consumers and Private Individuals. Business Debt Solutions Ltd are a solution source provider for directors who have made informed decisions. Please refer to our T’s & C’s.