Company Voluntary Arrangement
A Company Voluntary Arrangement is a Scheme of Arrangement entered
into between the company and its creditors. The Arrangement is governed
by the 'Proposal' which sets out the details of the scheme.
The Proposal can be made where:
- The company is not in liquidation or subject to Administration by its Directors
Or
- An Administration is in force, by the Administrator
Or
- The company has been wound-up, by the Liquidator
The Proposal can take any form subject to the agreement of creditors
but normally involves the delayed or reduced payment of debt, capital
restructuring or an orderly disposal of assets within an agreed
timescale. The company remains under the control of the directors but
the scheme itself is under the control of a Licensed Insolvency
Practitioner who acts as a 'Supervisor'.
The CVA procedure was designed primarily as a mechanism for business
rescue and is often used instead of Liquidation as a means of
distributing funds on the conclusion of an Administration
Summary of CVA Procedure
Directors, Administrator or Liquidator |
The Directors, Administrator or Liquidator (as appropriate) makes a 'Proposal' to the creditors. The Proposal sets out the proposed terms of the CVA |
Insolvency Practitioner |
The Insolvency Practitioner agrees to act on the implementation of the Proposal and then becomes known as the Nominee |
The Nominee |
The Nominee will convene a Creditors Meeting giving notice to all the creditors of the Proposal and providing proxy forms for voting purposes |
The Creditors Meeting |
The Creditors Meeting is then held and the creditors may approve, reject or propose amendments to the Proposal. The creditors may also choose another Nominee. If a majority of 75% in value of the creditor's present and voting vote in favour, the Proposal becomes binding on all unsecured creditors. |
The Supervisor |
Following the approval of the Voluntary Arrangement, the Nominee becomes known as the Supervisor and implements the Arrangement in accordance with the terms of the Proposal. |
Secured Creditors |
A CVA cannot effect the rights of a secured creditor of the company to enforce its security except with the agreement of the secured creditor |
Challenge Period |
A creditor may challenge the Arrangement within 28 days of its approval if it is of the opinion that it has been unfairly prejudiced by the Proposal or if of the opinion that there is a material misstatement in the Proposal |
Sources of Dividend Funding |
Normally, funds come from pledging future profits for a two/three year period or from a third-party who wishes to acquire the business |