There are a number of steps to be undertaken to put in place a Company Voluntary Arrangement:

Step 1: Review the Company Position

The directors of the company must review the company’s position and decide on the most appropriate course of action.

This review will involve an evaluation of the company’s financial position and require cash flow and trading forecasts to be produced and reviewed.

It is best to undertake this review with the help of a corporate insolvency expert who will be able to help the directors consider the different insolvency options. A CVA may be appropriate if it is decided that the business could continue to run profitably if the legacy debts were taken away or managed in a different way.

Step 2: Appoint an Insolvency Practitioner

Once the company directors have decided to propose a CVA, they must appoint an Insolvency Practitioner.

Only an Insolvency Practitioner is legally qualified to nominate the CVA to creditors on the director’s behalf and then supervise the arrangement once it is accepted by the creditors.

Step 3: Draft CVA Proposal

The insolvency practitioner will help the directors draft the CVA proposal. This will include the reasons why a CVA is appropriate, a forecast of the company’s trading position and a statement regarding what return is proposed for the creditors.
 
At this stage, it will be normal for the insolvency practitioner to speak to the company’s major creditors (especially the bank) to make sure that they will support the proposed CVA.

The Insolvency Practitioner may also decide to apply to the court for an Interim Order. This is a court order preventing any further action being taken against the company by its creditors for a period of 28 days. This will allow time for the CVA proposal to be drafted and a creditors meeting t be called.

Once drafted, the CVA proposal documentation is circulated to all known creditors and other interested parties.

Step 4: Hold a Creditors Meeting

All of the company’s creditors will be given notice of the creditors meeting. At this meeting, the creditors will be asked to vote for or against the acceptance of the CVA proposal.

In order for the CVA to be accepted, 75% of the value of the voting creditors must agree to the proposal.

The agreement may be approved with or without modifications. Once approved, the CVA binds all unsecured creditors to its terms irrespective how they voted at the meeting. If one particular creditor voted no to the proposal, but the majority voted yes, then all creditors are legally bound by the terms.

Secured creditors, who can enforce their security, are not affected by the arrangement.

Step 5: Maintain the terms of the CVA

Once the CVA is in place, the company has a responsibility to maintain the payments to creditors as agreed. As long as the terms of the agreement are maintained, then once completed, all outstanding debts will be written off and the business can continue to trade debt free.