Administration leading to a CVA

HOW ADMINISTRATION LEADING TO A CVA WORKS

Company Voluntary Arrangements (CVA’s) are actually quite rare.

They allow a company to keep going and retain its name, company number and usually it’s employees, suppliers, and customers. It can also usually keep its trading premises – important for a chain of shops.

So why are there not more of them?

The reason there are not more of them is it takes time to get creditors to agree to them and you need 75% of creditors VOTING by value to agree (this then binds all creditors). Creditors can vote for or against the CVA or for it with modifications. An example of a modification commonly proposed by HM Revenue and Customs is that no dividends can be taken during the period of the CVA. A CVA may last from a short period of time to up to five years.

Although creditors only need 14 days notice of a CVA, there can be quite a lot of lead time to get to that stage, by which time the company will often have fallen apart due to creditor pressure.

One way to achieve a CVA is to go into Administration first, so the business is protected. The Administration then gives the company some time to pull together the CVA proposal to creditors and get it agreed.

Once the CVA is approved the Administration then ends.

CVA’s have been used more recently by retail shop chains as it allows them to categorize shop leases into profitable sites and loss-making sites and either disclaim the leases of loss-making sites or only stay with a rent reduction.

EXECUTIVE SUMMARY

  • CVA’s are rare.
  • You need 75% of creditors (by value) (that vote) to support them. This then binds all creditors.
  • CVA’s have been used more for retail chains that need to vary the terms of shop leases.

David Kirk did exactly what he said he would. I’d be lost without Administration. Without David, we would have gone bankrupt by now. Really good

Sophie M