A Company Voluntary Arrangement is an agreement between a business and its creditors that allows the business to remain trading in the event of crippling financial trouble. The agreement states that a business may continue in solvency as long as it is able to repay a certain percentage of the value of its debts to the creditors each and every month until the arrangement ends.

Initially, a CVA must be proposed by either a director of the company, an administrator of the company or a liquidator appointed to deal with the assets of a company. Once it is proposed, an insolvency practitioner nominated by the company must report to court where they must establish if a meeting between creditors of the company and its shareholders should go ahead.

Once the meeting takes place, creditors and shareholders must vote on whether the CVA should be approved. If 75% or more of the creditors that have been notified of the meeting, agree to the action, then it becomes a legally binding agreement. The nominee or another insolvency practitioner then becomes the supervisor of the process.

A CVA that has been agreed upon by creditors denotes that the business is allowed to continue trading, which will enable the opportunity for the business to reorganize itself to try to cope with the fiscal difficulties it has been facing. A CVA is like a recovery package for ailing businesses that have experienced an economic downturn. The CVA will help to protect the business against bankruptcy whilst the agreed monthly payments are made to its creditors.

If your company has been suffering from a protracted period of loss making, then it is likely that your creditors will not agree to a CVA, as there is little chance that you will be able to resolve the situation and therefore little that they would gain. Bearing that in mind, a CVA is most useful for businesses that have only recently experienced financial trouble or expect to be in the green in the forthcoming months or years.

It will always be difficult for you to know and accept when your business has reached a point of financial turmoil that is difficult to overcome. Though once this position has been reached, at least you know that there is still one possible option available to you to help you out of the hole that you are in.

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