A number of beleaguered department stores are considering Company Voluntary Arrangements (CVAs) as a means of addressing their liabilities and continuing in business.

Luke Venner provides an introductory look at the CVA process and how it can be beneficial.

What is a Company Voluntary Arrangement? 

A CVA is a formal insolvency procedure designed to rescue a viable company, which is a flexible tool for restructuring a company’s liabilities and allowing repayment to creditors over a fixed period of time.

Full repayment to creditors is not obligatory, but it is important to demonstrate to creditors that a CVA will generate a better return than in winding up.

A CVA is a legally binding agreement between the company and its creditors, such that a CVA binds historic debt, freezes interest and provides protection from legal action, whilst also allowing the company to remain in business and make manageable payments based on its financial circumstances, for distribution between creditors.

What is the process? 

A company via its directors, typically, and with the help of a Licensed Insolvency Practitioner, will put forward proposals to its creditors to repay its debts in full and final settlement, usually by way of monthly payments over a fixed period.

Creditors are asked to vote on the acceptability of the Proposal and at least 75% of those creditors voting on the Proposal, by value, are required to vote in favour.

Creditors may ask that certain CVA terms are modified as a pre-requisite for acceptance, which is for the directors to consider.

The role of the Licensed Insolvency Practitioner, as Supervisor, is to realise the CVA assets, agree creditor claims, distribute funds to creditors and ensure that all CVA terms are adhered to, whilst the directors retain full control of the Company’s business.

At Bishop Fleming LLP we have an experienced team of Licensed Insolvency Practitioners who regularly advise on and implement successful CVAs for businesses in financial difficulty.

Should you wish to discuss this matter further on a no cost, no obligation basis, please contact a member of our team.

 
 
 

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