CVAs: Dealing with rejection or failure

What happens if a CVA is rejected or fails?

What is a CVA?

A company facing financial challenges has the option to initiate a Company Voluntary Arrangement (CVA). Essentially, a CVA is a structured payment plan established between the company and its outstanding creditors. It provides the company with an extended timeframe to repay its debts through a series of more manageable monthly instalments. This arrangement facilitates the company in sustaining its operations, regaining profitability, and reducing its overall indebtedness.

While the concept of a CVA may be attractive to directors grappling with overwhelming debt, it is essential to note that this approach is suitable for a relatively limited number of businesses. The commencement of a CVA requires the guidance of a licensed insolvency practitioner, and its execution necessitates approval from creditors accounting for at least 75% of the total debt. 

 

Can my CVA be rejected?

As reiterated earlier, a CVA is not universally suitable for all companies. To secure the necessary approval from 75% of creditors, it is imperative to demonstrate not only the company’s potential for future profitability but also the ability to meet the monthly repayments throughout the CVA duration. If creditors harbour any uncertainty regarding these aspects, the likelihood of your CVA proposal facing rejection is high.

Faced with such a scenario, a challenging decision must be made. You must assess whether meeting the demands of your creditors is feasible or contemplate the possibility of permanently winding down the company. If the latter is the case, closing a limited company with outstanding debts requires the implementation of a Creditors’ Voluntary Liquidation (CVL). In the event of a CVA proposal rejection, your insolvency practitioner will offer guidance on the most suitable course of action.

Read More:

• Hiving as part of Company Voluntary Arrangement
• CVA Advantages
• CVA Disadvantages
• Fast Track CVAs
• Negotiating a CVA With Creditors

 

What happens if I fail to keep up with the CVA?

Upon the approval of a CVA application, the responsibility falls on you to make the agreed monthly repayments directly to your insolvency practitioner, who will then equitably distribute these funds among your creditors. Failing to adhere to these agreed monthly payments amounts to a violation of the CVA terms, potentially leading to significant consequences for the future of your company.

While under a CVA, if you anticipate challenges in meeting upcoming payments, it is crucial to promptly inform your insolvency practitioner. There may be a possibility to renegotiate the terms of your CVA, potentially allowing for reduced monthly payments by extending the agreement’s duration. This adjustment enables you to pay less each month but over a more extended period.

However, modifying an existing arrangement requires creditor approval, akin to the process when initially establishing the CVA. Without the necessary approval, the CVA is at risk of termination. At this juncture, you must carefully contemplate not only your aspirations for the future of the business but, critically, whether these plans are financially viable. Regrettably, it may reach a point where the company’s debts become unmanageable, leaving you with little recourse but to shutter the business. While undoubtedly a challenging decision, it may be the sole means to overcome the current challenges. 

If your business grapples with financial concerns and you contemplate entering a CVA, or if you wish to explore alternative business recovery options, contact Vanguard Insolvency today. We will delve into your situation, offering recommendations for the best course of action for both you and your company. Schedule a same-day appointment with a licensed insolvency practitioner. With offices nationwide, spanning from Inverness to Exeter, Vanguard Insolvency provides unparalleled director advice across the UK.