Company Voluntary Arrangement
A Company Voluntary Arrangement (“CVA”) is a formal process that enables a company to put a compromise settlement to its unsecured creditors through a formal arrangement, based on a vote passed by a majority of creditors greater than 75% in value of those voting on the proposal.
Under the terms of a CVA, creditors agree to accept a certain sum of money in settlement of the debts due to them. The procedure is extremely flexible and the form which the voluntary arrangement takes will depend on the terms of the proposal agreed by the creditors.
All creditors are then legally bound to accept the terms of the arrangement, including those who either did not vote or voted in the minority against the proposals. The arrangement would provide a structure for a proportion of the debts to be repaid over a fixed period of time, this may be through the realisation of assets or contributions from monthly trading profits, or a combination of the two.
It is a fairly common insolvency solution as an act of recovery; particularly for companies that are struggling under the burden of debts but are still viable businesses.
Creditors are usually willing to support a CVA, even though they are unlikely to recover all of their debt, as opposed to alternative solutions such as Liquidation, which would inevitably see creditors receive a significantly lower return.