What Happens If My CVA Is Rejected?
A Company Voluntary Agreement (CVA) can be a lifeline for businesses struggling with debt. So, what happens if your CVA is rejected?
Knowing what happens is crucial – before you decide to start the process and if you find yourself facing difficulties after.
In this article, we’ll walk through how a CVA works, why proposals get rejected, what happens if you miss payments during a live CVA, and what your options are at each stage.
Summary: What happens if my CVA is rejected?
- Understand what a CVA is and if it would be suitable for your business before making any decisions
- Your CVA can be rejected by creditors – it’s crucial to know why and what to do thereafter
- Consider realistic alternative options if your CVA is rejected
- If your CVA is successful and you think you are going miss a payment, it might not be the end of the agreement if you act quickly
- Always seek professional advice from licensed insolvency professionals
What is a CVA?
A CVA is a formal insolvency procedure that allows a financially distressed company to enter into a legally binding payment agreement with creditors. The Insolvency Act 1986 introduced CVAs.
The CVA gives the company longer to pay back what it owes through monthly payments, typically over three to five years.
The company is allowed to continue trading, work towards profitability and pay back debts in a controlled way.
However, a CVA might not always be suitable for all businesses who are financially struggling. If this is the case, the CVA can be rejected before it starts, or it can fail after it has been approved.
Read more about our CVA services to see how Hudson Weir can help you.
Can my CVA proposal be rejected by creditors?
Yes, it can be rejected. Before a CVA is finalised, it must be approved by creditors holding at least 75% of the total debt by value. If this threshold is not reached, the CVA proposal is rejected and will not come into force.
To win creditor approval, you need to demonstrate that your company has a realistic prospect of becoming profitable. You also need to convince them that you are capable of maintaining monthly repayments.
If creditors have doubts about either of these, rejection becomes likely.
Other common reasons CVA proposals are rejected:
- The proposed dividend is too low: Creditors may feel they would recover more through liquidation than through the CVA repayment plan.
- Loss of confidence in the directors: Where there are concerns about how the company has been run, creditors may be unwilling to continue working with the existing management.
- HMRC objections: HMRC is frequently one of the largest creditors in a CVA. If the tax authority votes against the proposal, hitting the 75% threshold becomes significantly harder.
What happens immediately after a CVA is rejected?
At this point, directors must act quickly and carefully. Continuing to trade while knowingly insolvent can put you at risk of wrongful trading.
Not sure what wrongful trading is? Read our guide: What Is Wrongful Trading? How To Recognise It In Your Business.
The most important thing you can do is contact a licensed insolvency practitioner without delay to understand your remaining options.
A rejected CVA is not necessarily the end of the road. There are other options, but it would depend on the company’s financial situation.
Revise and resubmit the CVA
In some cases, you may be able to address the concerns raised by creditors and submit a revised proposal.
This option may only be worth pursuing if your business is still potentially viable. Speak to your insolvency practitioner for more advice.
If a revised proposal isn’t an option and your business is facing immediate pressure from creditors, more robust protection may be required:
Administration
Once a company enters administration, creditors are legally prevented from chasing debts while an administrator takes over.
Their goal is to keep the business running if possible – or if not, to sell off assets in a way that pays creditors more than a straight liquidation would.
Read our dedicated guide for more on this topic: What Happens When A Company Goes Into Administration?
Creditor’s Voluntary Liquidation (CVL)
If the business can’t be saved, a CVL is usually the best way to close it down. It lets directors manage the process themselves, rather than waiting for creditors to force the issue.
A licensed insolvency practitioner steps in as liquidator, sells the company’s assets, pays creditors what they can, and formally closes the company down.
A CVA is different from a CVL, you can read our dedicated guide on the difference: What’s The Difference Between A CVL And A CVA?
Compulsory liquidation
If directors take no action, creditors can go to court to have the company forcibly wound up.
This is messier and less controlled than a CVL, directors tend to face much closer scrutiny of their decisions in the run-up to insolvency. It’s always better to act early and voluntarily.
What happens if I miss payments during a CVA?
If you miss a CVA payment, it doesn’t automatically mean that the agreement is over.
If you think you’re going to miss a payment, the most important thing you can do is contact your insolvency practitioner straight away. In some cases, they may be able to negotiate a short-term adjustment with creditors.
However, if payments are missed without explanation or the problems continue, creditors can apply to have the CVA terminated.
If this does happen, creditors are free to chase the full amount owed, including any arrears that built up during the arrangement.
In the worst case, a failed CVA can trigger compulsory liquidation, particularly if creditors have lost confidence in the business’s ability to recover.
Further information
A rejected CVA can feel overwhelming, but it doesn’t have to mean the end.
The most important step is to speak to a licensed insolvency practitioner as soon as possible. Early advice gives you the best chance of protecting yourself, your business, and employees.
If you found this article useful, in other guides we address a wide range of common queries including:
- What Is A Compulsory Strike Off? All You Need To Know
- Is There A Penalty For Not Issuing Payslips (UK)?
- What Does IBR Mean? Independent Business Review – Explained
Please get in touch with Hudson Weir if you would like to discuss any debt-related concerns.
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