A company voluntary arrangement can be proposed by its directors when a company is insolvent, i.e. in a position where it is unable to pay its creditors on time or maintain its repayment obligations with them.

This solution is best used when a business is fundamentally sound but is being dragged down by old legacy debt.  The company’s creditors are becoming unbearable and demanding immediate payment. However, despite underlying profitability the company has no funds to repay its debts at straight away.

Can the company trade profitably without the burden of its debts?

The test is whether the company could begin to trade profitably and make a monthly contribution towards its legacy debts if the burden of its legacy debts were taken away. If the answer to this question is yes, then a company voluntary arrangement could be considered.  

The company must be able to predict ongoing revenues and profitability. If it is unable to forecast profitability due to poor cash flow, then a company voluntary arrangement may not be a suitable solution.

A company voluntary arrangement does not involve the closure or liquidation of the business. For this reason, a report on the behavior of the company’s directors is not required which may be an advantage if there is a question that the directors have knowingly allowed the business to trade inappropriately or when insolvent.

CVA can also be suggested and proposed by a liquidator if a company is in the process of being wound up or the administrator if there is an administration order in place. Either of these individuals can suggest that a CVA is the right course of action if they believe that this is the best way to deal with the company and its creditors.