The CVA Process
The company is insolvent satisfying the cashflow and/or balance sheet tests
Directors Appoint an Insolvency Practitioner
The Insolvency Practitioner will act as Nominee and will assist with the drafting of the CVA Proposal.
The Proposal is Submitted to Court with the IP's Report
The IP will submit the proposal to the court, with a report confirming that they consider the terms to be workable and that they are willing to supervise the running of the CVA.
Directors Convene a Creditors Meeting
Once the proposal is drafted, the Director(s) convene a meeting of creditors to consider its terms. Creditors are given a minimum of 14 days’ notice to review the proposal. At the meeting, in excess of 75% of the creditors must agree to the proposal for it to be approved.
If creditors do not approve
Directors can look to Modify the Proposals
If creditors do not approve, the Director(s) may look to modify its terms. The modifications may be considered at the initial creditors meeting. The meeting can also be adjourned for up to 14 days for the modifications to be fully considered.
If the modifications are approved
Directors Convene a Members Meeting
If the modified proposals are approved by the creditors, they will then be considered by the company’s members at the shareholders meeting.
The Insolvency Practitioner acts as Supervisor
The Nominee will then become Supervisor of the CVA. Their role will be to oversee the arrangement throughout its duration, making sure that its terms are upheld and taking measures in the event of a breach.
If more than 75% of creditors approve the proposal
Directors Convene a Members Meeting
The proposals will also have to be approved at a meeting of the company’s shareholders. This is convened to take place after the creditors meeting and are approved by simple majority.
When the majority of members approve
The Insolvency Practitioner acts as Supervisor
The Nominee will then become Supervisor of the CVA.
FAQs
What are the main differences between a CVA and other Insolvency Regimes?
The main difference is that a CVA is a way for the company to survive. The Administration procedure is sometimes used to assist with obtaining a CVA. However, more often than not, Administrations and Liquidations will usually signify the end of the company. In those cases, some businesses will survive, although they will be owned/operated by another company.
What will creditors be looking for when approving or rejecting a CVA?
There are two main things: what the likely return will be to them in a CVA compared to the alternative options and whether or not they believe the company can comply with its terms. The Proposal will contain a statement demonstrating to creditors that they will get a better return in a CVA than in a wind-up situation. It will also provide cashflow projections showing that enough cash will be available to pay the proposed payments.
If a CVA is approved how will it impact upon creditors?
If approved, the CVA will bind all unsecured creditors. Even those who voted against it or did not vote at all. This means that they cannot take steps against the company to recover liabilities owed prior to the CVA being approved.
How can a creditor challenge a CVA?
A creditor can challenge a CVA on the basis that they have been unfairly prejudiced by the CVA or that there was a material irregularity in the process to get it approved. The challenge is made by an application to the court.
What happens when a company in CVA does not comply with its terms?
This will be dealt with in the Proposal. Commonly, Proposals will provide that the Supervisor must petition for the Liquidation of the company if a breach is not remedied within the agreed timescale and that, if the CVA fails, he may still distribute any assets that he holds to the CVA creditors.
What is the difference between a Supervisor and an Administrator/Liquidator?
The Supervisor’s powers are set out in the Proposal and are limited to supervising the terms of the CVA. Administrators and Liquidators have far reaching powers enshrined in legislation.
Benefits of using us
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