What happens at a Company Voluntary Arrangement (CVA) Creditors Meeting?

If your company has entered administration, or it is struggling to keep up with repayments to creditors, one of the options available if the business is deemed viable, is a Company Voluntary Arrangement (CVA). This would allow the company to continue trading under the control of the existing directorship, and offers protection from further creditor pressure.

A proposed schedule of payments is presented to creditors by the appointed licensed insolvency practitioner which would see the company paying back its debts through a series of affordable and sustainable monthly repayments. If your business is viable, a Company Voluntary Arrangement gives your company the very real opportunity to become profitable again.

Your appointed insolvency practitioner will negotiate a proposal within a month of being called in, and once directors have given their agreement, it is lodged at court and then distributed to unsecured creditors. Creditors have the right to vote on whether or not to accept the CVA, at a special meeting convened by the IP.  This is an extremely important point of the proposed CVA. Without the consent of at least 75% (by value) of the creditors included as part of the proposal, the CVA will not be able to be implemented.

The creditors meeting

A meeting of unsecured creditors has to be called at least three weeks after the CVA proposal’s distribution. This allows creditors to carefully consider their position, and opinion on whether to accept the arrangement.

It also provides an opportunity to ask questions of the insolvency practitioner, and find out more background information about why the company had to declare itself insolvent. This information will have a bearing on their decision, but the fact that a professional advisor believes that the company is viable in the long-term, usually carries significant influence.

Distribution of the proposed CVA terms is a vital part of this process for directors. It offers creditors the opportunity to digest and understand the implications of voting. The three-week timescale between distribution of the proposal and the creditors meeting affords directors plenty of time to prepare for creditors’ questions.

What does the CVA proposal include?

Careful preparation by the administrator ensures that creditors have access to all the detail they need. This alleviates much of the pressure for directors at the meeting, and can pave the way for a smooth exit from administration.

A CVA proposal will generally include detailed financial forecasts for up to five years. This allows creditors to make an informed decision about whether or not to accept, as they can see in detail the potential level of returns from the process.

Good communication between the IP and creditors is key, and can form the basis of a potentially positive future for the company.

Voting takes place – a majority vote is needed

There must be a vote of at least 75% in favour of the CVA (by value of debt), and this includes any votes by proxy or post. A second vote is then taken without ‘connected’ creditor participation, and as long as 50% or more vote for acceptance of the CVA, it will be passed.

Creditors need to consider that their ability to take legal action will be removed if they agree the proposal, which is a significant factor if the debt is large. On the other hand, if the only alternative for them is to forcibly wind-up of your company, this could bring them lower returns than the CVA.

A meeting of shareholders is also called by the insolvency practitioner around the same time as the creditors meeting.  A majority of 50% of shareholders need to agree the proposal for the CVA to go ahead.

What happens at the creditors meeting?

The meeting is chaired by the appointed IP, who can request that at least one director or officer of the company is also present. It is often the case that few creditors actually attend the meeting. Some will send a representative to vote on their behalf, and others who are happy to proceed with the proposal, tend to send in their vote by post.

Those who attend may have questions to ask about specific items on the proposal, or wish to request modifications. If any amendments are made to the CVA, voting takes place again on the same basis as the original vote.

HMRC commonly request modifications with a view to protecting their interests and encouraging all future filing dates to be met.  

Once the CVA proposal has been agreed by majority vote at both the creditors’ and shareholders’ meetings, the insolvency practitioner is required to produce a report within four days. This details who was present at the meeting, what was discussed, and how the votes were cast. It is sent to all unsecured creditors, with a copy also going to the court. Once implemented, a CVA becomes legally-binding on all parties for the duration of the agreement.

With over 100 local offices around the country, Begbies Traynor can offer a same day consultation free of charge. Contact a member of our expert team to discuss your company’s situation, and get the professional advice you need.