A CVA (or company voluntary arrangement) bears many similarities to an IVA (individual voluntary arrangement) but as the name suggest is a method that is open to companies rather than individual people. This legally binding process allows a company or organisation to create a legal agreement with the creditors to whom they owe money, agreeing and defining exactly how that company's liabilities and moneys owed will be repaid.
By completing the CVA procedure, a company in financial difficulties may be able to cut an agreement with their existing creditors as to when and how the money they owe shall be repaid. This may involve complete or part repayment of the debts owed – dependant upon the financial circumstances in which the company finds itself and what it can physically afford.
Although obviously not ideal for them, some creditors may choose to support the actioning of a CVA if the alternative situation for their debtor is to face immediate and total liquidation - which would in turn most likely provide next to nothing if indeed nothing at all to the creditors in question. CVA’s essentially aim to act and protect the best interests of the crediting parties – but simultaneously allow a company that owes large volumes of money which it cannot immediately pay back to remain trading and therefore keep its staff in work. When a CVA is agreed however, the proposed repayments must be realistic and achievable, so as to give the creditors a fair chance of recouping some or all of the monies they are owed.
A company is only allowed to suggest the implementation of a company voluntary arrangement if it is in a trading situation in which it is insolvent or contingently insolvent. Three quarters of the creditors are required to agree to the proposal in order for it to be pushed through for approval. Once agreed, the CVA will bind all creditor parties regardless as to whether they voted for or against the measures, and will also allow the current directors remain in charge of their company.
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