What's a Creditors' Voluntary Arrangement?

Sometimes it can feel like debts are looming large on the horizon and seem unconquerable. But, believe me, there is help out there!

Creditors Voluntary Arrangement

A Creditors’ Voluntary Arrangement (CVA) is an agreement between a company and its creditors, which sets out the plan for the repayment of the company's debts. These arrangements are entered into when a company is insolvent and can't pay its debts as they fall due.

A business has the option to continue trading whilst under a CVA or cease trading. The decision depends on the company’s situation and its creditors.

The first step when entering a CVA is to seek the advice of a licensed insolvency practitioner. When doing so it’s vital that you’re completely transparent with them and that you reveal to them all the facts about the company’s situation.

The job of the insolvency practitioner is drafting the report, which is sent to the creditors, and to broker the arrangement with them.

Meeting of the creditors

The creditors are entitled to vote on the arrangement proposal. This vote takes place at a meeting of the creditors, however, they don’t actually need to attend the meeting. Instead they can vote via a proxy and request that on the day of the meeting the chairman votes on their behalf. At the meeting there must be a ‘yes’ vote by at least 75% of the creditors for the arrangement to be passed.

The creditors are entitled to make modifications to the arrangement as they see fit. These will be part of the vote and can see the meeting adjourned to allow time for their review.

What happens if the creditors vote ‘yes’?

If the CVA is approved, you need to follow the arrangement. This means making the payments you agreed to, giving your account details, and helping the insolvency practitioner however needed.

The goal of the CVA is to help the business pay off its debts and start fresh. It’s important that you stick to the plan.

Your creditors will lose some money because they won’t get all of what they’re owed. They will only get a part of their debt back. It’s rare for a CVA to repay all the money owed to creditors.

And if the creditors vote ‘no’…?

If the creditors vote against the arrangement and the requisite 75% agreement can’t be achieved, the arrangement will fail.

In this case the company will have two options: submit a revised proposal hoping it satisfies your creditor’s needs, or place your company into voluntary liquidation.

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Winding up your company

Placing your company into voluntary liquidation will set you on the path to ceasing trading and striking the business off the Companies House register.

There are various options for the company’s liquidation:

• As the owner, you can place it into liquidation via a creditors’ voluntary liquidation.
• The company can be forced into compulsory liquidation in the event of the CVA’s failure, with the creditors taking action to recover their money.

When a company is liquidated, its assets (like equipment and property) are sold off to raise money. This money is used to pay the company’s debts. If there’s any money left after paying the debts, it is shared among the owners or shareholders of the company.

Employees will also be treated as special creditors and will be paid from any money left over.

After all the assets are sold, the debts are paid, and the company is removed from the official register at Companies House, the company is officially closed down and will no longer exist. Any debts or liabilities connected to the company will be cancelled.