Although a CVA can seem confusing at first, the process is actually quite simple once it’s broken down into steps. CVAs are fundamentally designed to help your company continue trading while ensuring its creditors are fairly repaid.
The process of entering into a CVA can be broken down into several steps, each an equally important part of the process:
- Discovering your company is insolvent and comparing options
- Deciding to propose a CVA to end pressure from your creditors
- Submitting a CVA proposal to creditors and awaiting their decision
- If successful, restructuring debts and implementing the CVA
- If unsuccessful, exploring other insolvency solutions
Below, we’ve broken down the CVA process into smaller steps and explained how it works and how your company is involved. If you’re considering a CVA, the process below will provide more information on what to expect over the coming months.
Before a decision is made regarding a CVA:
Company directors realise company is insolvent
The CVA process begins when you realise your company is insolvent. As company director, you’re requires to take immediate action to maximise the interests of the creditors as soon as you discover that your company is no longer solvent.
Your company can become insolvent due to inadequate cash flow (known as cash flow insolvency) or when its debts exceed its assets (balance sheet insolvency). Our Insolvency page offers additional information on the conditions for insolvency.
Company directors seek advice regarding insolvency
After discovering that your company is insolvent, you take action by seeking advice from our expert team. We can review your company’s finances and determine the optimal approach, whether it’s entering into administration or proposing a CVA.
As part of our review of your company’s finances, we’ll prepare an in-depth report outlining its major financial issues and the most appropriate solution for ensuring the company recovers.
If other options are more appropriate than a CVA, we’ll provide detailed information outlining the best course of action for your company in our report so that the board is aware of all available options for recovery.
Company directors make decision to propose a CVA
As the company director, you decide whether or not to enter into a CVA. If all of your company’s directors agree to propose a CVA to creditors, the process of preparing a CVA begins and pressure from creditors temporarily comes to an end.
This part of the CVA process usually takes between one and two weeks to complete. If your company’s board immediately decides to use a CVA, the process can be slightly faster.
After the directors decide to propose a CVA:
CVA.co.uk appointed by the company’s board
After your company’s board decides to propose a CVA, we’ll be appointed to handle the CVA process. Any legal pressure against your company, such as demand letters from creditors, will be halted as the CVA proposal is prepared for delivery.
CVA draft is prepared and creditors consulted
At this point, we’ll take care of the CVA while you focus on managing your company and ensuring relationships with customers aren’t affected. We’ll meet creditors and prepare all of the information required for an effective CVA proposal.
Draft is presented to the board and, if necessary, revised
Once we’re prepared the first draft of your CVA proposal, we’ll submit it to you and the rest of your company’s board. You’ll get the chance to review the CVA proposal and offer feedback to ensure the CVA is realistic and suitable for your company.
CVA is submitted to the court and sent to creditors
At this point, the CVA proposal will be submitted to a nominee and reviewed. The CVA and a report prepared by the nominee are submitted to the court and mailed directly to your company’s creditors.
Creditors meet to accept or reject CVA proposal
After the CVA is submitted to the court and mailed to creditors, a shareholders and creditors meeting is scheduled. This meeting usually takes place two to four weeks after the CVA is submitted to the court so that all major creditors can be present.
At the shareholders and creditors meeting, your company’s creditors are given the choice of accepting or rejecting the CVA. At least 75% of creditors (by value) need to accept the CVA in order for it to be approved.
In addition to 75% of more of your company’s creditors, the CVA also needs to be approved by at least 50% of your company’s shareholders. If either rejects the CVA, your company will need to consider an alternative insolvency solution.
After creditors vote to reject the CVA proposal:
Alternative insolvency solutions are considered
If creditors and/or shareholders reject the CVA, your company will need to consider a different insolvency solution. Your company can enter into administration even if its proposal to enter into a CVA is rejected by creditors or shareholders.
Other alternative insolvency solutions include pre-pack administration, which lets your company sell some of its assets to a new company in order to repay creditors, and liquidation.
- Learn more about administration
- Learn more about pre-pack administration
- Learn more about liquidation
- Learn about other alternatives to a CVA
If your company doesn’t proceed with an alternative insolvency solution after the CVA is rejected, it could be wound up by creditors via the compulsory liquidation process.
After creditors vote to approve the CVA proposal:
Debts are restructured based on the CVA proposal
If creditors and/or shareholders approve the CVA, your company will can start to restructure its business and move towards a recovery. The changes in the CVA can be implemented and your company can make the important changes it needs.
These changes can include terminating unprofitable or unhelpful contracts, leases and agreements and making members of staff redundant, often at no cash cost to your company.
Company continues trading and meets its CVA terms
Once the CVA is active, your company needs to comply with its terms in order to be protected against legal action from its creditors. All existing legal action – such as a statutory demand against your company – is stayed for the duration of the CVA.
Your company may need to make payments to creditors for several years (typically two to five years) to complete the CVA. If your company fails to meet the terms of its CVA and misses a payment, there are several potential outcomes:
- A creditor files a winding up petition against your company and attempts to have the company liquidated
- The CVA is modified to reduce your company’s monthly payments and give it more time to pay off its balance to creditors
Although CVAs can fail for a variety of reasons, most CVAs are designed to provide a realistic opportunity for your company to recover, with payments that do not strain your company’s cash flow or prevent it from operating as normal.
- Learn more about what happens if a CVA fails
After the CVA is completed:
Once your company has completed the CVA period and made the required payments to its creditors, its relevant unsecured debts are written off. Your company is free of debt and can continue trading, expand or operate based on your goals.
Although entering into a CVA can affect your company’s access to credit even after the CVA is completed, most companies that complete the CVA process recover and continue trading successfully after their creditors have been paid.
Does your company need expert help?
If your company is struggling with inadequate cash flow and pressure to pay from its creditors, a CVA could be the best solution to its problems. With a CVA, you gain protection against legal action and the chance to work out a long-term solution.
CVAs usually last for several years, giving your company additional time to pay off its debts and return to financial stability. As part of a CVA, part of your debts could be written off to make repaying creditors more manageable and realistic.
Dealing with a struggling company can be immensely stressful. We can review your company’s finances and provide the advice you need to make the right decision for your company’s future.
We can also provide information on alternatives to a CVA, such as administration, pre-pack administration and the possibility of using invoice factoring and other financing solutions to raise the cash your company needs.
Contact us to speak to an insolvency expert and learn more about the CVA process for your company. We’re here to help you make the right decision to protect your company and preserve its future while ensuring creditors are treated fairly.