A Company Voluntary Arrangement (CVA) is a legally binding agreement that is used by a business that can no longer meet the repayments of its debts. The CVA establishes how much money the business can afford to repay to its creditors as well as a monthly payment plan. If accepted by the creditors, the new monthly repayment replaces the numerous existing repayments. Once the CVA has run its course (usually they last between three and five years) then the remainder of the debts should be written-off by the creditors.
Before the CVA is in place, a proposal is made by the directors of your company to the creditors and shareholders, providing a full disclosure of all the business assets and liabilities together with a proposition for enhancing the return to creditors. The proposal compares to that which creditors could expect to receive under other insolvency procedures, and usually involves delayed or reduced payments of debts, capital restructuring or an orderly disposal of assets.
Despite being a formal procedure under the Insolvency Act 1986, it is possible to build in as much flexibility in dealing with the company's assets and liabilities as is acceptable to creditors. A Company Voluntary Agreement usually allows the continued involvement of the company's directors in its own affairs, subject to review by a supervising licensed insolvency practitioner.