What’s The Difference Between A CVA & An IVA?
If a company or individual is struggling to pay their debts, there are a number of steps that they can take to help re-stabilise their finances. One of the ways to do this is to enter into an agreement with the creditors to whom the debt is owed, in order to negotiate a more manageable repayment scheme. If you’re looking for ways to manage your debt either as a company or an individual then you’re likely to have heard the terms ‘CVA’ and ‘IVA’ thrown around a lot. What’s the difference between these two terms and which one could help your situation? Let’s find out.
Definitions – CVA Vs. IVA
Company Voluntary Arrangement (CVA) = a formal agreement between a limited company and its creditors to pay back its debts over a specified period of time, as agreed in the CVA proposal.
Individual Voluntary Arrangement (IVA) = a formal agreement between an individual and their creditors to repay their debts over a specified period of time. Individuals may use an IVA to avoid bankruptcy, and it can also be used by sole traders. (The process will affect your personal credit rating).
As you can see from these definitions, the fundamental difference between an IVA and a CVA is that one applies to limited companies and the other applies to individuals. However, the aim and process of each is practically identical.
What’s Involved In A CVA or IVA?
Both types of voluntary arrangement require a proposal to be drafted with the direction of a licensed insolvency practitioner, which is then submitted to creditors for approval as follows:
1. Proposal Drafted
The CVA or IVA proposal is the document that will be presented to creditors, and outlines the intended payment schedule, with supportive evidence of how the company or individual will achieve this. This needs to include detailed information on cash flow forecasts and financial statements. An insolvency practitioner should act in an advisory capacity to assist with the drafting of the proposal.
2. Insolvency Practitioner Instructed As Nominee
Once the proposal has been drafted, the insolvency practitioner will be instructed as nominee to review the proposal and ensure it will be successful before it is filed to court. Once the proposal has been filed to court it can then be circulated to creditors for consideration.
3. Creditors Vote
Creditors will have a meeting to vote on whether or not the CVA or IVA will go ahead. The agreement can only go ahead if at least 75% of creditors vote in favour of it. Once approved, the insolvency practitioner will act as supervisor throughout the duration of the agreement in order to ensure that the company or individual is adhering to the terms set out within the proposal.
If the CVA or IVA proposal is rejected, then alternative options will need to be considered, such as Creditors Voluntary Liquidation (CVL) for limited companies, or bankruptcy for individuals.
If successful, the benefit of these two processes is that they provide an opportunity for companies and individuals to get on top of their debt without closing or falling into bankruptcy.
If you would like any further details on either a CVA or an IVA, please don’t hesitate to get in touch with our experienced team of licensed insolvency practitioners at My Liquidation today.
