We’ve all experienced times when our debts seem to be 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. It’s the job of the insolvency practitioner to draft 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’ll be required to fulfil the terms of the arrangement, including making the necessary contributions, provision of account details and assist the insolvency practitioner in anyway necessary. The point of the arrangement is to wipe the slate clean and see the business repay its creditors. Therefore, it’s imperative for you to meet the obligations.
Your creditors will be taking a financial loss by agreeing to the CVA, as they will only be awarded a dividend payment towards their debt sum. It’s not usual for a CVA proposal to set out repayment of creditors in full.
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.
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. Alternatively, the company can be forced to liquidate in the event of the CVA’s failure, with the creditors taking action to recover their money. This is a compulsory liquidation.
The liquidation will see a company’s assets sold and debts consolidated. The sale of the assets will generate funds to pay the company’s debts and if any surplus funds will be divided between the shareholders. Upon liquidation it’s to be noted that the employees will become a special category of company creditor, having a claim on the company as well.
Once the assets are sold, the debts paid and the company is removed from the register at Companies House, it will officially cease to exist and any liabilities attached to that company shall cease.