Company Voluntary Arrangement
The CVA procedure, introduced with the Insolvency Act 1986, is a flexible procedure for insolvent companies, and can be a useful alternative to liquidation. An insolvent company may formulate proposals to its creditors, normally with the assistance of an Insolvency Practitioner who is appointed Nominee by the debtor. The company sets out its history, its assets and liabilities, its actual and projected profitability, and the manner in which it is proposed to deal with creditors.
It is possible to obtain an order from the Court to protect the company while the proposals are being formulated. The Nominee files in Court a report on the proposal stating whether in his opinion meetings of shareholders and creditors should be called to consider and vote on the proposals. The Nominee then sends the proposals to shareholders and creditors and invites them to separate meetings.
The shareholders and creditors may accept or reject the proposals, or negotiate amendments with the Board of Directors on behalf of the company. The company must convince affected parties that the proposed outcome will be more favourable to them than the alternatives of seizing assets or liquidation.
At the Creditors Meeting the creditors vote on whether to accept or reject the company's proposals, which may be modified by agreement. For the proposed Arrangement to be accepted, 75% of voting creditors by value must be in favour. If so, the Nominee is normally appointed Supervisor of the CVA, with duties from then on to ensure that the terms of the proposals are complied with, to distribute funds to creditors, and to report periodically on progress.
The Supervisor will declare the Arrangement a success when all of its terms have been complied with. In the event of failure, the Supervisor is often obliged to petition the Court for liquidation of the company subject to availability of cash with which to fund petitioning costs.
This information is written in general terms and cannot be fully comprehensive. Its application to particular circumstances will depend on specific facts. The views and suggestions set out are not intended to constitute professional advice or to be a substitute for specific advice.
