Understanding More About Company Voluntary Arrangements

Are there laws in place for companies who run into problems paying their debts similar to the ones that are in place for individuals? Whilst there are similarities, the laws and procedures for businesses are different than the ones for individuals in many important aspects. Here we’ll take a look at company voluntary arrangements so that you can understand them better.

What Does A CVA Entail?

Just like people, businesses sometimes get in trouble financially and when this happens they may not be able to pay back their creditors as promised. They may choose to exercise something called company voluntary arrangements or CVA. When these Arrangements are enacted it allows the company to pay only a portion of what it actually owes to any creditors.

When Are Companies Able To Enter Into a CVA?

This can only be enacted when the creditors the company owes approves the proposal. When a company seeks a CVA then the creditors will consider the procedure and correspond with the company before making a decision. When a creditor is deciding to accept the proposal or not, they will take a vote and it needs to be approved by at least 75% of those who can vote. In this situation no more than half of those who vote against the proposal can be creditors who are totally unconnected to the company.

How Does The Acceptance Of A CVA Affect Creditors?

When the agreement is voted on and the creditors approve it, it means that everyone that was involved in the vote will be bound by the agreement. This includes not only those who voted for it but also those who voted against it. It also includes those who received a notice of the proposed agreement and chose not to vote. It even includes those creditors who might have voted but didn’t receive a notice although they were entitled to receive a notification.

Once a CVA is enacted it prevents any of the creditors from taking any further steps against the company beyond the terms of the agreement. This means that as long as the company is following the contents of the agreement, then the creditors can take no further action against them. They also wouldn’t be able to try and insist on any other terms or payment.

Can A Creditor Challenge CVAs?

If a company was not notified but was entitled to be so and they feel it’s unfair, then they can put an application into the court to revoke the CVA. If it is perceived that there were any irregularities within the agreement or the procedure, then this would also be a reason that it could be challenged.

If the one who owes the debt defaults or refuses to comply with the agreement, then there are provisions within it that determine what actions will take place. In many cases, it will likely mean they will be in default and their assets could be liquidated. Additionally, the creditors may no longer be bound by the agreement and this would allow them to pursue the full debt they are due.

There is a lot of information around on the web, but we would recommend you check out this great page as well as looking and searching for other articles on CVA’s