Q. Who can propose a CVA?
A. The directors of the company are usually the main instigators of a CVA.
Q. What information is required for a CVA to be considered?
A. The directors would have to provide a general history of the company, identify what went wrong and indicate how this situation is going to change.
Detailed financial information must be provided to allow the preparation of cash flow and profit and loss forecasts.
The Insolvency Practitioner should be informed of any history of insolvency in respect of the directors and any legal action commenced in relation to the company.
Q. How can you tell if a CVA is viable?
A. For a CVA to work, the following are essential:
the company must return to profitability;
the reasons for the company's problems must be identified and rectified;
the acceptance of the change must be adopted by management;
capital injections could be proposed and these would have to be obtained;
all VAT and Tax returns must be submitted; and
the level of the CVA contributions together with the future liabilities that will be incurred following the approval of the CVA must be affordable.
Q. How does the voting work?
A. Of the total value of votes received from creditors either in person or by proxy 75% must approve the CVA or it will be rejected.
Q. How would the bank be affected?
A. A. The bank is usually a secured creditor and would therefore not be legally bound by the CVA. However their co-operation would be required, as the majority of companies rely on having the use of an overdraft facility.
The bank would usually prefer that the overdraft is reduced over time.
Q. How will H M Revenue and Customs be affected?
A. H M Revenue and Customs (formerly Inland Revenue and H M Customs and Excise) have a specialised centralised department who consider all CVA proposals. Absolute Recovery ensures that their usual standard conditions are included in the CVA proposal.
If tax and VAT returns are not up to date and/or there has been a breakdown in the relationship between the company and H M Revenue and Customs, the proposal will have a significantly lower chance of being accepted.
Q. What happens if the company's circumstances change and amendments need to be made to the terms of the CVA?
A. With the acceptance of the creditors a variation can be made to the terms of the proposal at any time.
The same voting applies as for the acceptance of the Arrangement i.e. of the total value of voting creditors, 75% must accept the variation.
Q. Can a CVA provide protection from executions or distraint action?
A. Yes for companies with no more than 50 employees and with turnover under £2.8M per annum. It is now possible to seek protection from creditors using the new CVA procedure that includes a moratorium.
Under the new procedure a 28 day moratorium automatically commences on the filing at Court of certain documents. There is no requirement for a court order. The 28 day period can be extended up to two months but the existence of the moratorium does have to be advertised. The moratorium prevents action by a landlord or secured creditors against the company's property and assets and prevents any other legal process including another insolvency procedure from commencing or continuing.
Q. What happens if some creditors don't vote?
A. Once approved the terms of the CVA are binding on all creditors who would have been entitled to vote at the meeting of creditors even if creditors did not get notice of the meeting. Thus the unknown creditors are bound by the arrangement.
Q. Someone told me that if we do a CVA the company has to pay back 100p in the £1 or the tax people will reject the proposal is that correct?
A. NO! The amount the company pays back should always be based upon affordability not some arbitrary number. We always work out a 5 year programme with supporting and highly detailed forecasts. Then the result is a better structured longer lasting CVA.
The Revenue and VAT people will be happier to support that plan than a half baked scheme that takes the total unsecured and tax debt and divides it by 24 months – to get a simple 100% repayment. This method is doomed to failure!
Under the law there is NO minimum payment or dividend as it is known, the law simply lays out a method for offering a deal to the company’s creditors.
Q. If we propose a CVA what will HMRC do?
A. The HMRC has a duty to consider the deal and the normal process is for the Insolvency practitioner to call HMRC and say a CVA is being prepared. The collector or debt recovery unit will then pass the file to the voluntary arrangement service in Worthing. They will consider the document very carefully and vote accordingly. They will not (usually) collect any tax and NIC between notification and the creditors meeting.
Q. Who can propose a CVA?
A. A CVA may be proposed by the directors of the company. When the company is either in liquidation or administration, the liquidator or administrator can propose a CVA. A CVA can only be proposed if a company is insolvent or contingently insolvent.