Corporate Voluntary Arrangements and Insolvency proceedings
Corporate Voluntary Arrangements (CVAs) and Insolvency proceedings
Company insolvency proceedings, including Corporate Voluntary Arrangements (CVA), are formal measures that deal with company debt. There are multiple types of company insolvency proceedings, including:
- Corporate Voluntary Arrangements (CVAs)
- Going into administration/appointing an administrator
- Going into receivership
- Voluntary liquidation
- Compulsory liquidation
- European cross-border insolvency proceedings
When can a Corporate Voluntary Arrangement be used
If a limited company is insolvent, it can use a Company Voluntary Arrangement (CVA) to pay creditors over a fixed period. If the creditors agree, the limited company can continue trading. A company or limited liability partnership (LLP) can apply for a CVA if all the directors or members agree. A CVA can only be put in place via an insolvency practitioner. They will charge a fee to apply for the CVA and also to administer it.
What’s involved in applying for a Company Voluntary Arrangement?
- The insolvency practitioner will work out an ‘arrangement’ covering the amount of debt the company can pay along with a payment schedule. They must do this within a month of being appointed.
- The insolvency practitioner will write to creditors about the arrangement and invite them to vote on it.
- To get a CVA, it must be approved by creditors who are owed at least 75% of the debt.
- If the creditors agree scheduled payments must go through the insolvency practitioner until the agreed debts are paid off.
- If a company fails to get agreement from 75% or more of the creditors, the company could face voluntary liquidation.
Do insolvency proceedings apply to all types of companies?
Both registered and unregistered companies can go into receivership or enter a CVA/winding-up agreements. Voluntary winding-up and administration do not apply to unregistered companies, as they cannot be bound by these methods. If the liquidation or receivership began before 29 December 1986, then the law in force at that time will continue to apply. It’s also important to note that not all companies that are in liquidation are insolvent.
Do all companies have to go through insolvency proceedings before being dissolved?
No. If the Registrar (Companies House) has reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation. A private company that is not trading may apply to the Registrar to be struck off the register. This procedure is not an alternative to formal insolvency proceedings.
In certain circumstances, a company doesn’t have to go through insolvency proceedings before it’s dissolved. For example, if the Companies House Registrar has evidence that a company is no longer trading or isn’t operating, that company may face having its name removed from the register without liquidation proceedings taking place. Additionally, a private company that isn’t trading can request that the Registrar remove its name from the Companies House register. However, these procedures shouldn’t be seen as alternatives to formal insolvency proceedings when such proceedings remain possible.
What happens to the directors of an insolvent company?
When a company becomes insolvent, the liquidator, administrative receiver, administrator, or official receiver must send a report detailing the conduct of all directors who were in office during the company’s last three years of trading. The Secretary of State then decides whether it’s in the public’s interests for the directors to receive disqualification orders.
Some of the reasons for a disqualification order taking place include:
- Continuing to trade when the company was insolvent
- Failing to keep proper accounting records
- Failing to prepare and file accounts, or make returns to Companies House
- Failing to pay tax that’s due to the Crown or failing to file returns.