What is a CVA (Company Voluntary Arrangement)?

The KSA Group started taking formal insolvency appointments in 2009 with the merger of KSA Group and Marlor Walls in the summer of that year.Since then we have learned a massive amount about the technique, we’ve gained experience from dealing with over 320 CVA appointments between 2009 and September 2022 . That’s 320 crisis situations - devising appropriate rescue and turnaround strategies together with our clients’ boards of directors, their lenders investors and stakeholders like creditors, landlords and employees.Many in the insolvency markets have a negative approach to the CVA tool. Variously over the years we have been told that “CVA doesn’t work, they are never the best solution, they hardly ever succeed. Creditors get nothing. HMRC will not support a CVA” and we understand that approach. Often clients or prospective clients report to us that other insolvency firms rubbish the CVA tool. Perhaps that’s why CVAs are not that common. Only 175 have been approved nationally in the year to 30th December 2023.We beg to differ. A well structured, “fit, fair and feasible CVA” scheme can:Rescue viable businesses when a critical event has occurred. Help a determined management team rebuild a failing business. Save jobs of employees. It is likely that KSA saved over 11,000 jobs from 2009-2022. Save directors livelihoods and health. Return money to creditors: KSA has distributed £31m to creditors 2009-2022. This excludes secured debts and secured factoring facilities, much of which have been or will be repaid. Repaid £17.9m to HMRC between 2009 and 2023, remember this for the most part when HMRC was an unsecured creditor (2009-2020). That’s taxpayers money. Saved creditors money. Preserved 320 customers for thousands for suppliers, accountants and professional advisors.Nobody knows more than the KSA team, that CVA rescues are tough to construct, tough to implement, and tougher still for companies to successfully recover from.  We have filed more successful CVAs than any other practitioner.  We can send the research to you if you want. Please email robertm@ksagroup.co.uk for the FOI request reply from Companies House.The London Gazette (the official paper of record dating back to the 17th Century) has published an article about CVAs written by Keith.Diligent and organised directors can use this enormously powerful tool, case law and best CVA practice to drive a turnaround but only if guided by experienced turnaround and insolvency professionals. Be under no illusion this is tougher on the directors than anything they will do in their careers. Emotionally, intellectually and physically the CVA led turnaround requires directors to have resilience, physical and mental determination and a good guide.Of course, not all CVAs reach full term but the process secured jobs, paid back creditors a good chunk of what they were owed and with that helped reduce directors liability under their personal guarantees!Conversely, some clients paid off a 3-5 year CVA scheme debts in 6-18 months. Others went through mergers and acquisitions processes, which preserved jobs and businesses. Many plodded on to successfully pay back the CVA as planned. Still the key for us is we did our best to help our clients and creditors recover from a crisis.It has to be said that even with KSA’s “evangelical zeal for CVAs “ as an insolvency firm, the majority of our work by case numbers is normal voluntary liquidations and administrations. Too many SME directors leave the decision to take advice from the insolvency world far too late. Would we have rescued more of these liquidations had the directors only approached us sooner? Impossible to tell.Our final point would be to funders, lenders, investors, VCs and family office investors. In the main, secured creditors stand outside of a CVA process which can lead to dilution for preferential and unsecured creditors. What do you have to lose by encouraging your clients or customers to take advice on RESCUE options like CVA first?The CVA team at KSA group is made up of creative turnaround advisors, creditor liaison experts, tough debt negotiators, brilliant financial modellers and pragmatic insolvency practitioners. We will always look at rescue and closure options impartially and based upon our professional assessment of viability. Yes many directors come to us liking the CVA option, unfortunately many of these businesses or directors simply don’t have the necessary attributes for a rescue.Now, as a team we have, collectively over 500 company voluntary arrangement deals, built, filed and approved by creditors, we believe we know a fair deal about this rescue tool! Get in touch if your client, customer, investee or your company is interested in leading edge CVA advice. See our expert guide for directors below.DOWNLOAD OUR 69 PAGE GUIDE ON CVAS

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The main advantage of a CVA over TTP is that you can write off a proportion of the debt whereas a TTP you have to pay all of the debt.

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If A CVA is rejected then the company may have to go into administration or liquidation

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We have heard that HMRC will not support a CVA?   Now, since 2021 that HMRC has become a preferential creditor in insolvency, I have heard insolvency practitioners say that HMRC will not support a company voluntary arrangement. Is this true? No, it is not true. Having been involved in company voluntary arrangements and advising directors on their options since 1996 we can safely say that HMRC will take each case on its merits.Is a CVA the best option for creditors? Or is administration or liquation the best outcome?It is for the insolvency practitioner and the directors to work that out together.As a company voluntary arrangement is a formal insolvency process the “case” is then taken out of the hands of the enforcement department and is referred to the Voluntary Arrangement Service or VAS. The VAS has to judge whether a CVA is a fit, fair and feasible alternative to winding up. Note: the last line of the aims of the VAS as published on the HMRC website. They WANT to help rescue viable companies!But they need to see a viable plan for the company so that they are satisfied that tax revenues can be restored. It is putting this plan together, overseen by our CVA experts with hundreds of CVAs behind them, that we can help you with. We talk to the VAS almost every day.HMRC will approve company voluntary arrangement proposals if they are properly structured, well thought through, supported by a detailed financial forecast and a statement of affairs and comparisons of outcome to show the difference between liquidation or a CVA. But one of the key tests is this:  IS THE BUSINESS VIABLE?Additionally, HMRC will not support CVAs when there has been poor management, lack of financial information, regular late filing of tax returns or annual accounts and lots of tax arrears going back for a long time. We call this the compliance test.The fact that they are secondary preferential creditors, in my view, will not count for too much except that it may make them more likely to accept CVAs where there is a good dividend outcome and evidence of viability. “What will management change to make the CVA and the company successful” is their key question, not what will preferential status mean for HMRC’s recovery.So, the key decision for all directors is to decide whether the business is viable, subject to being restructured and costs cut perhaps, not whether HMRC is a preferential creditor. In our view the focus should be on what is a sensible outcome for the creditors, what changes will the business and management need to make to make the CVA a viable proposition, and putting the best foot forward in essence. It is not enough to simply say “well you will get less in liquidation”.The HMRC Combined Voluntary Arrangement service has long experience and expertise in looking at all voluntary arrangements in the United Kingdom. A high-quality proposal has a better chance of being approved than a blunt “take it or leave it” approach that may advisors seem to take. Many say how much is the overall debt and then simply divide that by 36 and there is your CVA monthly payment?! Is that affordable?  Our team will work carefully with you to produce flexible financial forecasts that ask the “what if” questions that change requires. This is good CVA management and good CVA planning.HMRC  being a secondary preferential creditor will mean that all contributions made into the CVA scheme will be allocated to HMRC for VAT and PAYE (CT is not preferential) until it is paid 100p in £1, the remaining contributions will then be paid to the other unsecured creditors. The same process existed in the period between 1986 and 2003, therefore KSA was writing CVAs with this debt repayment structure for many years prior to the change in September 2003.  Our prediction is that CVAs will still be acceptable to HMRC, but the QUALITY of the CVA proposal and a viable company, with good management will always stand a better chance of approval. So choose your CVA advisors wisely!To speak to the UKs leading CVA experts please give us a call or click. Our website has been providing assistance to directors since 2000 and we have been helping directors with their company problems since 1996. We know quite a lot about CVAs, having been advisors to thousands of companies in that time.Remember that during the drafting period of the CVA it is essential that any new debts to HMRC like PAYE and current VAT liabilities are paid over. The reason being that if the company stops paying these then HMRC may worry about viability.

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It is possible to make staff redundant at no cost to the business by going into a CVA. If you feel your business could only survive if you could cut headcount quickly by 25% but you think this is too expensive and impossible to do then please read this page.

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These are the common worries about CVAs that we have heard over the last 25 years or so of doing them. ''Our suppliers will not supply us!'' This is the most common worry. But YES they will supply you. They need to maintain their sales to your company, as much they don't like losing the money owed. We spend a lot of time on creditor liaison and it is very rare that a supplier will not supply.It is possible that if a creditor has to be paid in full for the benefit of other creditors i.e it stops the company being unable to trade, or allows the release of goods, then it is possible that they can sit outside the CVA and so paid in full. Any such payment will have to be declared to the other creditors so it has to be justifiable in the circumstances.  This is not the same as a preference where you desire to make one creditor better off than another such as an associated firm or a relative.By carefully explaining what the company is doing, how it will be in their best interests and asking them to work with the company and ourselves we ensure that creditors are kept informed and on side. Don't expect any credit terms or any favours. But being honest and open with them pays dividends in the long run.In the end not paying your suppliers on time and having them issue threats is even more detrimental to your business.  If we think you can pay them back completely over time then we can always look at a time to pay arrangement whereby we do a deal to pay back all of the debt over an extended period.Also do not forget that a CVA can be 100p in the £1 and that is binding on all other creditors.You are trying to maximise creditors interests by doing the CVA, and therefore it's in their interests to work along with the plan. "We will lose our customers!" No you will not. In over 500 cases people have said this to us and we do understand why. However, in practice we have rarely seen a customer walk away from a business that is delivering its products and services; well and on time. This should be your focus. Stop fire fighting and get back to your main role in the business. This way customers will stick with your company. If you continue to focus on the fight for survival rather than maintaining good service sooner or later your performance will fall and their business may suffer. This is when you will lose your customers. "Should we tell our customers then?" Many people think they cannot tell their customers that they are doing a CVA or they will walk away. That is your decision and one that should be based upon knowledge of the business relationship, their requirements and any contracts. Sometimes the best answer is to tell them with us in attendance. Often this is better than a competitor telling them that you have gone bust?Think what you would feel if a major supplier did not tell you of their problems and their plans to deal with it, but instead they hear from a local rival that you have gone into liquidation?! It is best to be upfront and honest, and explain your plans to maintain and ultimately revive the business. "Our staff will walk out!" Generally they will stay. If they walk out they will lose any employment rights and will not receive any redundancy, lieu of notice payments from the company or the DBEIS. Furthermore, they will not be eligible (generally) for unemployment/job seekers allowance. So we recommend being open and honest and working out a plan for and with the employees. Proper communication is vital. Some employees may lose their jobs as part of the restructure; this is painful and at times inevitable. We can work with you to to make the process as simple as possible. ''The bank will appoint an administrator!'' Again this is simply not true, as long as a cogently structured plan and a well, presented approach to the bank is used. Most banks are now much more supportive of out of court restructurings like a CVA as it avoids the usual huge asset meltdown and costs of say administration. Although the CVA cannot affect the rights of the bank or lender they are stakeholders and should be closely involved in the process. ''The HMRC will not support a CVA!'' Yes they will if it is a properly structured, well thought through plan and the company has been compliant with tax rules (i.e. filed the relevant returns) in the past (being on a time to pay deal is being compliant!).  It is also advisable that the directors have filed their own tax returns on time! The HMRC agency that decided on these proposals is called the Combined Voluntary Arrangement Service. Currently, it votes in favour of c. 70% of all proposals. However, we have a >70% approval record. Bear in mind that HMRC are now secondary preferential creditors, so will receive 100p in the £1 in any CVA and unsecured creditors will receive less.  Please read our latest page on the HMRC and the CVA Process "I will lose any tax losses if the company goes into a CVA" No you won't. Even if the company's assets are transferred to another business in the form of a "hive down" then the losses can be transferred provided some certain conditions are met. For more details read our CVAs and corporation tax issues page here ''Our Regulator will step in and take over!'' Regulators can, typically, intervene and or remove a company from service provision. But that’s likely to be a HUGE headache for the regulators and they need to have a strong reason to do this and maintain control over clients, client files and ensure any replacement provider is fit for purpose. But they will do this if the provider is non-communicative and or they fear uncontrolled insolvency-led closure.And so proper and informed communication is critical to ensure that the right message is delivered by the company and is advisors.  KSA has worked with regulators across the business spectrum including Road Traffic Commissioners, the General Dental Council and the Solicitors Regulation Authority for example.Yes any regulator can take action if it feels that services are at risk, but business as usual with and experienced, expert guidance from KSA will usually persuade the regulator that a planned solution is viable. It may lead to the need for future newcos to hive contracts to or indeed to tender for new contractsStill got questions? Then click here for CVA FAQ  Alternatively give our team of advisors a call on 0800 9700539 now, or contact us by email: keiths@ksagroup.co.uk

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A CVA and Hive Down is a process where a separate company is formed to bid for contracts t The assets of the company are transferred but the separate company pays the CVA contributions.

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