UK Insolvency Law allows an insolvent company or a company with debt issues to enter into a Company Voluntary Arrangement (CVA) with its creditors regarding repayment of full or a part of its debts over a mutually agreed period of time. When a company is bankrupt or on its verge, it is the creditors whose money is on stake so this arrangement can only be implemented by an insolvency practitioner who will draft a proposal for the creditors followed by the meeting with the creditors to check if the terms of the proposal i.e. CVA is accepted by them. In case, the proposal gets 75% of votes from the creditors, it is considered to be accepted by all of them and the current legal action against the company, if any, ceases till the time period mentioned in the proposal. Normally, the time period in CVA is anywhere between 1 to 5 years. Once a company enters into a Company Voluntary Arrangement with the creditors, Companies House need to be informed about the same who will register or make a note of this on their credits file.
In case you are not a limited company and are a sole trader or self-employed, then you have to apply for an Individual Voluntary Arrangement (IVA).
To enter into a Company Voluntary Arrangement, it is imperative to have the agreement of the creditors. So the steps to enter into a Company Voluntary Arrangement are as mentioned below:
Usually, even if the creditors’ money is at risk, they are more than willing to support Company Voluntary Agreement even though the chances of recovering their full amount is not very bright, as opposed to the alternative measures like company liquidation.
In case your business is facing cash crunch and facing threats from the creditors and risk of forced liquidation is quite likely, entering into a Company Voluntary Agreement with the creditors is the best solution which not only give you time to deal with the problem but also loosen up the pressure from the creditors and thus might help in reviving your business.
Company Voluntary Agreement (CVA) has various other advantages, such as:
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