What is a CVA?
It is basically a deal between the company and its creditors. A CVA means that the company can remain under the control of the existing Directors and continue to trade as before.
If we do a CVA are we able to reduce the debts owed?
Yes – generally the company will agree to pay back a percentage of the debts, depending on affordability.
If we propose a CVA, will HMRC support it?
The HMRC has a duty to consider a CVA, and just because they have rejected them in the past does not mean they do not support them.
The HMRC will approve a CVA if it is a properly structured proposal, and the company has been compliant with tax rules in the past.
Global or the turnaround practitioner will inform the HMRC that a CVA is being prepared.
Once they receive the file they will consider it very carefully and vote accordingly. They will not (usually) collect any tax and NIC between notification and the creditors meeting.
What does a CVA entail?
Global or your turnaround practitioner will help you put together your future business plan and CVA proposal. This document then needs to be approved by a meeting of creditors – who reserve the right to make modifications or suggestions.
A CVA must be approved by over 75% of creditors and over 50% of shareholders.
Do we need to inform our key customers?
Although customers are mainly focused on your ability to deliver a quality service or product – they will still want to be reassured that you will be in business in the future. Therefore if you are concerned that a CVA may affect new or existing business then talk to Global about how to approach this with your clients.
How are my creditors likely to react to a CVA?
Depending on your relationship, it may or may not come as a surprise to them. But generally, many will appreciate that by proposing a CVA you are trying to resolve the company’s financial issues; and if a comprehensive and well thought out recovery plan is presented, many may view this move as positive.
How and when should I inform my employees?
It is important that you tell your employees when the time is right, and possibly when a proposal has been approved – if appropriate. The management team will need to be involved in the process at an early stage, in order to develop a proposal for creditors to approve.
What happens to my Personal Guarantees if we propose a CVA?
They are guarantees that cannot be removed unless and until the debt is paid off. The longer term repayment to secured creditors should be considered as part of the overall restructuring. Once the debt is cleared there is no reason why PG’s cannot be removed.
How do we assess if a CVA is a viable option?
There are several questions that need to be answered before proceeding with a CVA.
Can the company continue to trade?
Is there sufficient working capital/cash available?
What is the attitude of creditors to support the CVA?
How do we deal with aggressive creditors whilst we are trying to complete CVA?
If you are dealing with an aggressive creditor then there are two options available to you. The first relies on case law and the second on the new Insolvency Act 2000. The best option is to inform Global of the situation immediately so that we can advise the best course of action.
Can we continue to trade while we propose the CVA?
In order to maximise the creditors’ interests and generate income for the business, it is essential to keep trading whilst putting the CVA proposal together.
Is it costly to do a CVA?
Generally it is not as expensive as other forms of debt solutions. As payments to HMRC and non essential creditors are suspended you will find that cashflow will improve.
Full costs will depend on individual circumstances, so it is best to speak to Global or your turnaround practitioner directly to get a clearer understanding of costs.