FAQs
What is a Company Voluntary Arrangement ("CVA")?
A CVA is often an attractive alternative to administrative receivership, administration or liquidation. It is the only true recovery situation where the directors remain in control of their business and the shareholders retain ownership of the assets of the business and company. In each of the alternative procedures the effective control / ownership of the business and assets reside in the Insolvency Practitioner.
A Voluntary Arrangement is a formal and legally binding agreement between the company and its creditors. The terms of the proposal to creditors may vary however creditors will expect that their prospects of recovering money will be at least as good as in any other form of insolvency. They will also expect the proposal to contain sanctions (such as the right to wind the company up) if the company does not fulfill its part of the agreement.
How Do I Know What to Offer Creditors?
We would give the directors guidance on what to offer creditors.
The company makes a proposal to creditors which will be prepared by the directors with our assistance based upon the directors' future business plan. This proposal states what funds will be made available to creditors by the company and over what time scale. Whilst the proposal is being drawn up and put to creditors we would act as the Nominee. Creditors are sent the proposal and asked to vote to accept it, vary it or reject it at a meeting. Creditors are given 14 clear days notice of the meeting.
What should I offer creditors?
Creditors want to be put in a better position than if the company ceased trading and was wound up. This may be more money or it may include the same amount of money but receipt of it sooner. In fact many creditors are likely to agree to receiving a smaller sum if a lump sum can be offered immediately, for instance by an injection of cash from realising equity (by re-mortgaging) in your property or an injection from Shareholders.
It should be pointed out to creditors that it is in their best interest to retain a customer who has to pay on agreed credit terms whilst they can benefit from the business's future profits.
Do all creditors have to agree?
No. A minimum of 75% of creditors must agree to the proposals (plus any variation) at a general meeting, and once the arrangement is approved, all of the creditors notified of the CVA are bound by its terms under the Insolvency Act 1986. Creditors can suggest changes, however the directors must agree these in order for them to be implemented.
What if I have already got legal actions taken against the company?
If you already have legal actions taken against the company, or are imminent, we can, on the company's behalf, make an application to Court for a Moratorium. A Moratorium effectively stops any legal proceedings whilst creditors consider the proposal. However, the general rule is to approach creditors as soon as possible rather than waiting for them to loose patience and start recovery proceedings.
What are the benefits of a CVA?
A CVA allows the company to continue trading and remains in the ownership of the shareholders and under the conduct of the directors. As long as the company complies with the agreed terms of the proposal no legal actions can be commenced against the company for action prior to the CVA; effectively it gives the directors an opportunity of starting again without having to purchase the business. No reports are prepared on director's conduct.
What are your charges?
Our initial consultation is FREE. We meet with you in our offices for an initial free one hour consultation. After this meeting we would advise you of the company's rights and the alternatives available to you. If you wished to enter into a CVA we would act as the Nominee. Our charges for acting as Nominee are quoted on an individual basis according to complexity and number of creditors.
When the CVA is accepted by creditors we would become your Supervisor. Our remuneration when acting as Supervisor is agreed to by creditors and is taken out of the funds held for creditors
How long does a CVA Last?
A CVA can be for any period, perhaps finishing when a specific event has happened. More normally where the Company makes monthly contributions to the CVA is for 2 or 3 years.
Why chose a CVA instead of a Liquidation?
Whilst each case needs to be considered on its merits, the following are some reasons why a CVA might be the best solution:-
- Provides a legally agreed timescale to achieve a better result for the creditors. (Liquidators are unlikely to trade the company)
- Provides for the possibility of restoring the company to health.
- Directors remain in operational control
- Only creditors are advised of the CVA - not the customers
- Enables contracts to be completed without incurring penalty charges (provided the cash flow is sufficient)
- The problems are considered to be more temporary rather than permanent.
When should I seek Advice?
Seek advice at the earliest opportunity from a licensed insolvency practitioner. Immediately the company is unable to pay its debts as they fall due or if the company's assets are less than its liabilities, including contingent liabilities. The sooner you seek advice the more options will be available to you.
Take advice today. It is FREE for the first consultation. Ring Lynn Gibson or Robert Hewitt for an appointment with no obligation on 01932 336149 or email us at accs@gibsonhewitt.co.uk
What is an Individual Voluntary Arrangement ("IVA")?
An IVA is often an attractive alternative to bankruptcy, particularly if you own assets, have a monthly income or someone who is willing to gift you funds to pay your creditors.
A Voluntary Arrangement is a formal and legally binding agreement between you and your creditors. The terms of your proposal to creditors may vary however creditors will expect that their prospects of recovering money will be at least as good as in bankruptcy. They will also expect the proposal to contain sanctions (such as the right to bankrupt you) if you do not fulfill your part of the agreement.
How Do I Know What to Offer Creditors?
We would give you guidance on what to offer your creditors.
You make a proposal to creditors which will be prepared by yourself with our assistance. This proposal states what funds will be made available to creditors by you and over what time scale. Whilst the proposal is being drawn up and put to creditors we would act as your Nominee. Creditors are sent your proposal and asked to vote to accept it, vary it or reject it at a meeting. Creditors are given 14 clear days notice of the meeting.
What should I offer creditors?
Creditors want to be put in a better position than if you were declared bankrupt. This may be more money or it may include the same amount of money but receipt of it sooner. In fact many creditors are likely to agree to receiving a smaller sum if a lump sum can be offered immediately, for instance by family or a friend or by realising equity by re-mortgage you property.
If you own a house perhaps you can raise a further mortgage on it.
If you have no asset to sell but are in employment you could offer a monthly contribution which would be placed into a fund for the benefit of your creditors.
You are able to offer any combination of these.
Do all creditors have to agree?
No. A minimum of 75% of creditors must agree to the proposals (plus any variation) at a general meeting, and once the arrangement is approved, all of the creditors notified of the IVA are bound by its terms under the Insolvency Act 1986. Creditors can suggest changes, however you must agree these in order for them to be implemented.
What if I have already got legal actions taken against me?
If you already have legal actions taken against you we can, on your behalf, make an application to Court for an Interim Order. An Interim Order effectively stops any legal proceedings whilst creditors consider your proposal. Such proceedings can include repossession proceedings of your home.
What if I am Already Bankrupt?
If you have assets and or are able to make monthly contributions to the fund for your creditors we may be able to help you get an annulment of your bankruptcy and put an IVA in its place. Whilst it is not always possible to do this we consider individual circumstances on their own merits and can advise you accordingly.
What are your charges?
Our initial consultation is FREE. We meet with you in our offices for an initial free one hour consultation. After this meeting we would advise you of your rights and the alternatives available to you. If you wished to enter into an IVA we would act as your Nominee. Our charges for acting as Nominee are from £750 plus VAT but are quoted on an individual basis according to complexity and number of creditors.
When your IVA is accepted by your creditors we would become your Supervisor. Our remuneration when acting as Supervisor is agreed to by creditors and are taken out of the funds held for creditors
How long does an IVA Last?
An IVA can be for any period, perhaps finishing when a specific event has happened. More normally where the debtor makes monthly contributions the IVA is for 3 years but can last 5 years.
What is the benefit if a bankruptcy only lasts 1 year?
Even though you are a bankrupt in most cases for a maximum of 1 year all assets owned at the date of bankruptcy remain the property of the Trustee even if they are unsold. Also the Court can make Income Payment Orders which last for 3 years despite you having obtained your discharge. In addition an IVA has the following advantages:
- the costs and fees of an IVA are often less than bankruptcy
- you can act as a director and retain your professional qualification eg solicitor, accountant
- you can be employed as a policeman, firefighter etc
- there are no restrictions placed on your actions
- an IVA is not publicised whereas a bankruptcy is
- you retain ownership of assets
- if you are trading you can continue trading
What is legal action has already been taken against me?
We can help you apply for an Interim Order which prevents any creditor taking any action against you whilst you put your proposal to your creditors. This action can even prevent possession proceedings of your house.
I am Self-employed. Can I continue trading?
Yes you are able to continue trading. However you must be able to identify how your problems arose and what you will do to ensure the business is profitable. It is vital that the business is viable ie can meet it's liabilities as they fall due and is profitable.
Why not simply write to creditors seeking an informal scheme?
Whilst this is possible, there are 3 main objections from the debtor's point of view:
- There is no legal timetable for the creditors to reply to your request
- An IVA can bind in creditors who do not chose to accept the proposal - provided the IVA is passed by the requisite majority of votes
- The IVA process provides a formal legal framework for the creditors to accept a lesser sum than may be contractually due.
When should I seek Advice?
Seek advice at the earliest opportunity from a licensed insolvency practitioner. Immediately you are unable to pay your debts as they fall due or if your assets are less than your liabilities. The sooner you seek advice the more options will be available to you and the less you are likely to have to pay in total.
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