CVA

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"We have exclusively used Booth & Co for all our clients’ insolvency work for around 6 years and cannot praise Phil in particular enough for his professionalism, knowledge and personal skills when dealing with our clients in what can be very difficult financial and emotional times.

From the initial phone call to get Phil involved on a case, I know the client is going to be in safe hands and will receive the right advice for their specific circumstances. Communication is always prompt and clear and the feedback I receive from clients is always “you were right about Phil Booth, I’m glad we had that meeting”.

We look forward to working with Phil and the rest of his team well into the future."
Paul Hendley, Cartwright & Co Accountants, Barnsley

A CVA is a formal, legally binding agreement between an insolvent company and its creditors.  It is a powerful and flexible insolvency procedure that enables a viable company to reach a compromise with its creditors, allowing the business to be restructured, costs to be cut and creditor pressure to be reduced.

Typically, a CVA is used for businesses with temporary cash flow difficulties, perhaps caused by a one-off incident such as a significant bad debt or the ill health of a key company officer.

In order for the CVA to be acceptable to creditors, the directors must demonstrate that normal business patterns have been resumed, the company has returned to profitability and accordingly has the ability to repay its creditors (either in full or in part) over time.

In order for a CVA to be approved, it requires more than 75%, in value, of creditors who vote on the CVA proposal (at a meeting of creditors convened for this purpose) to be in agreement. This means that if the company has one or several large creditor(s), it is they who can effectively control the outcome of the process.

On the other hand, as long as the larger creditors are in agreement, then the CVA will be binding on all creditors, including any smaller creditors who had perhaps voted against it.

It is not necessarily the case that a company will have to offer to repay 100% of its debts, though if the company owes money to HM Revenue & Customs in respect of certain taxes (inc VAT, PAYE and employee NICs) then this would need to be settled in full as part of the CVA. This is pursuant to their status as ‘Secondary Preferential Creditors’ which became effective from 1 December 2020.

After payment in full of any preferential claims, the amount unsecured creditors will receive depends on:

–     The value of the company’s assets which are to be included in the CVA; and

–     The amount of surplus income available according to financial projections prepared by the company and it’s advisers

An important feature of CVAs is that the company’s management remains in control of the business throughout the duration of the CVA, which is typically between 2 to 5 years. The insolvency practitioner appointed to ensure the terms of the CVA are adhered to (‘the Supervisor’) does not get involved in the day-to-day running of the company.

When the CVA has been successfully completed, the company is handed back to the directors and shareholders.

Unfortunately, if the terms of the CVA proposal are not adhered to, or the company incurs liabilities after the approval of the CVA, then the arrangement will fail and the company may be placed into Liquidation or Administration.