As a result of the 2002 Enterprise Act, there are two main ways of trying to rescue or save all or part of a company that is in financial difficulties. These are by Company Voluntary Arrangement (CVA) or by Administration.

Company Voluntary Arrangement (CVA)

Under a CVA the directors make a proposal to the company’s creditors to enable the company to be saved by accepting less than they are owed. If the company agrees by a majority, and 75% of the creditors agree, the proposal is binding on all the creditors.

Small companies (as defined by the Companies Act) are able to obtain a 28-day moratorium from their creditors to allow them time to put forward a proposal. This is obtained by filing an outline of the intended proposals with the court, together with a report by the insolvency practitioner nominated to oversee the proposal.

A CVA has several advantages:

There are also disadvantages:

How to start a CVA

You need to enlist the help of a licensed insolvency professional, then ensuring that your accounts and cash flow forecasts are up-to-date, draw up a statement of affairs, create a proposal and then start negotiating.

Most creditors will prefer to accept something rather than nothing, but 75% have to accept your proposal This may be difficult if your main creditor, for instance, your bank does not have any faith in your management abilities. For step-by-step help for directors, see FAQs: Directors and insolvency.