A company voluntary arrangement (CVA) is an arrangement which a company makes with its creditors to avoid other insolvency processes such as winding up or administration.
The company needs to consult an insolvency practitioner who will help the company put together a proposal to creditors. The proposal may provide for the company to make regular payments from income over a period of time, or the company may simply need some time and a breathing space to complete a lucrative contract which will enable it to repay its creditors.
It may be possible for a company to obtain a moratorium where the appropriate documents, including the proposal to creditors, are filed with the Court. A moratorium will prevent any creditors from taking any action against the company to commence proceedings, obtain a Judgment or to enforce an already existing Judgment, for a period of time which will normally end on the day of the creditors' meeting.
Once a company has put together a proposal the documents will be served on the creditors who will be invited to attend a creditors' meeting where they will be invited to vote upon the terms of the proposal. Creditors will have the ability to accept or reject the proposal put forward by the company and as long as more than 75%, in value, of the creditors who vote, approve the company's proposals, then the proposals will be binding upon all of the creditors. Creditors may make their vote for the voluntary arrangement conditional upon the acceptance of certain amendments to the proposal.
Following the meeting all creditors are served with a notice of the outcome of the meeting and will be bound by it, assuming the requisite majority has approved the proposal. At this point the insolvency practitioner changes from being a nominee to a supervisor and is responsible for monitoring the proposal and ensuring that the company complies with it.
It is quite common for a proposal to provide that if the company fails to observe the terms of the proposal, such as by failing to meet regular instalment payments, that the supervisor should take action to wind up the company and this hopefully provides sufficient incentive to the company to comply.