Company Voluntary Arrangements (CVA's) - FAQ's

Why a Company Voluntary Agreement and not Liquidation?
Winding up a company can have serious consequences - personal guarantees can be called upon, there are risks of disqualification as a director plus the potential of being forced to contribute to the company's assets if found guilty of wrongful trading or misfeasance. However, creditors are unlikely to support a Comapny Voluntary Agreement where the directors have acted against creditors interests. Company Voluntary Agreements are generally cheaper, fees wise, and give a far better return to creditors.

Can a Company Voluntary Agreement provide protection from executions or distraint action?

Yes for companies with no more than 50 employees, with turnover under £6.5M per annum and balance sheet assets below £3.26M. It is now possible to seek protection from creditors using the new Company Voluntary Agreement procedure that includes a moratorium.

Under the new procedure a 28 day moratorium automatically commences on the filing at Court of certain documents. There is no requirement for a court order. The 28 day period can be extended up to two months but the existence of the moratorium does have to be advertised. The moratorium prevents action by a landlord or secured creditors against the company's property and assets and prevents any other legal process including another insolvency procedure from commencing or continuing.

What happens if some creditors don't vote?
Once approved the terms of the Company Voluntary Agreement are binding on all creditors who would have been entitled to vote at the meeting of creditors even if creditors did not get notice of the meeting. Thus the unknown creditors are bound by the arrangement.

What is the attitude of the Inland Revenue and Customs and Excise?
The Crown creditors lost their preferential status as of 15 September 2003 and so now they rank as an unsecured creditor. This is far better from other creditors perspective as previously it could have taken several years to amass sufficient funds in a Company Voluntary Agreement to clear the preferential creditors and so unsecured creditors quite often had to wait 2 to 3 years before they saw a return.

It was thought that the Crown creditors would take a much tougher approach to Company Voluntary Agreements but this has not really happened. They are however, less likely to support a Comapny Voluntary Agreements where the directors have, in the past, repeatedly failed to ensure that the company settled PAYE/NIC and VAT and also failed to file tax returns. It is possible to seek a view from the Revenue and Customs' Voluntary Arrangement Unit in Worthing on whether they are likely to support a Company Voluntary Agreements.

The Next Step

The options for a financially distressed business need to be very carefully considered. Simply forward your details on our Contact Form and we will contact you. Alternatively ring us on our FREEPHONE ADVICE LINE 0800 781 0990.

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