I had an interesting meeting with the head of services for a local authority nervous about my client’s financial status following its entering into a Company Voluntary Arrangement (“CVA”).
The client’s contract with the local authority had stalled due to the negative perception of what a CVA is and concerns were expressed as to the risk to them in continuing the relationship. The objective of the meeting was to assist the local authority with understanding what a CVA is and it dawned on me that perhaps there is an audience for a blog on the subject as I admit to being surprised how little the local authority understood about the role of a CVA in insolvency, so here goes a summary of what a CVA is and what role it plays in getting a company out of a financial quagmire.
A Company Voluntary Arrangement is a formal agreement between an insolvent company and its creditors, allowing the company to repay its debts over a set period, usually 3-5 years, while continuing to trade. It’s a way for a company to restructure its debts and avoid liquidation or administration. The CVA is supervised by a licensed Insolvency Practitioner.
Here’s a breakdown of how it works:
- Proposal and Supervision:
- The company, facing financial difficulties, proposes a CVA to its creditors.
- A licensed Insolvency Practitioner (IP) supervises the process.
- Agreement with Creditors:
- The CVA outlines how much of the debt will be repaid, and over what period.
- Creditors vote on the proposal, and if approved by a majority, it becomes legally binding.
- Debt Restructuring:
- The CVA might involve writing off some debt or reducing the amount owed.
- It allows the company to continue trading, potentially with reduced monthly payments.
- Ongoing Obligations:
- The company makes regular payments to the IP, who distributes the funds to creditors.
- The company must comply with the terms of the CVA to maintain its trading status.
- Potential Benefits:
- Avoids liquidation or administration.
- Provides a breathing space to restructure and become financially viable.
- Can lead to a better outcome for creditors compared to liquidation.
In essence, a CVA is a tool for business rescue, enabling a company to negotiate with its creditors, restructure its debts, and continue trading, ultimately aiming for a return to financial health.
Returning to my meeting, I am pleased to report that not only did the local authority lift the restrictions on the supply of services to my client, it agreed to an uplift in fees and additional numbers in order to support the success of the CVA and the company’s future fortunes.
If you want to know more about CVA’s or any other aspects of dealing with creditors threatening winding up proceedings etc, contact me for a no obligation discussions at femi@femiogunshakin.com or femi.ogunshakin@nexa.law or call me on 07867 795 439.
Photo by Brett Jordan on Unsplash
