Corporate Voluntary Arrangement
A Corporate Voluntary Arrangement (CVA) allows corporations to reach a compromise with its creditors regarding outstanding debts. All the directors must agree to a CVA, and if the creditors accept the proposal, the company can carry on trading. During the CVA process, a Supervisor oversees the scheme of arrangement of affairs that a corporation makes with its creditors.
Who can propose a Corporate Voluntary Arrangement (CVA)?
There are three types of people who can propose a CVA:
- An administrator, if an administration order is in place.
- A liquidator, if the company is being wound up.
- Directors under certain circumstances.
When the CVA has been proposed, a nominee is appointed as a supervisor. The supervisor has 28 days to report to the courts with the aim of telling them whether the company should call a meeting with its creditors.
What is the approval process for a CVA?
The approval process for a CVA involves meetings that are organised by the nominated supervisor. During the meetings, they will discuss whether to approve the arrangement and whether any notifications are necessary. Creditors must be given adequate notice before attending each meeting. Once the arrangements are decided upon, any creditor who had notice and attended the meeting is bound by the terms. Once the arrangements have been approved, either the nominee will continue to act as a supervisor or someone will be nominated to act in their place.
What does the supervisor need to send to Companies House?
Every 12 months the Supervisor must send a report on the CVA progress to the Registrar at Companies House. This report should also include the prospects for fully implementing the voluntary arrangement to all other interested parties. After the arrangement has reached its conclusion the Supervisor then notifies the Registrar within 28 days. Similarly, if the arrangement is suspended or revoked for any reason, the Registrar must receive notification within this time.
What is a moratorium and when can it be used?
Under The Insolvency Act of 2000, companies entering into a CVA can arrange for a moratorium. This is a 28-day period that allows the company to compromise its liabilities, providing 75% of the creditors are in agreement. A moratorium is guaranteed, however. A court must agree that the company is eligible for a moratorium. If the courts are in agreement, the moratorium is managed by a nominee who is usually a registered insolvency practitioner. The company may or may not continue with the CVA at the end of the moratorium.