In this case, the testimonial is from the Chairman of the National Hairdressing Training Academy (‘NHTA’), who have recently come out of a Company Voluntary Arrangement that we supervised, in a stronger position than ever.
What the Client Had to Say About Our Work
We were appointed as the Supervisor of NHTA’s Company Voluntary Arrangement in the April 2012. They had been struggling since 2008 and the decision to enter a CVA with a 5 year term was finally made. The CVA has recently ended (March 2017).
A CVA Allows a Company to Continue to Trade Whilst its Issues are Addressed by the Supervisor
As one of the main tools available to an Insolvency Practitioner, a CVA is a procedure that is used whereby an insolvent company can continue to trade. This is providing it is considered that the company has already returned, or is likely to return to profitability in the near future and can pay off its debts, in a planned and affordable way, to its creditors, over a 3-5 year period. Typically, the arrangement is for paying off between 25% – 60% of debts.
There are many reasons why companies become insolvent and all are interrelated. They include: cash flow problems, creditor pressure and HMRC Debt, often against a background of difficult trading conditions, as in this case.
Before appointed as the supervisor, the Insolvency Practitioner is called the nominee, and their first job is to prepare a proposal for the directors and the shareholders of the business. This must be approved before it is presented to the Creditors, where it must receive 75% support. The proposal is, therefore, the key document for framing the terms of a Company Voluntary Agreement. Typically it will include:
- A detailed trading history explaining how the company has arrived at its current situation and how it intends to move forward.
- A summary of the company’s accounts for the past two years.
- A full disclosure of the company’s assets and liabilities, including a detailed a list of all creditors.
- A trading and cash flow forecast.
- A comparison between the outcome of the CVA compared to liquidation.
- An indication of dividend payments and the timing of those payments.
- Details of any assets excluded from the arrangement.
Importantly, the proposal is not just a technical and financial exercise. It requires specific work and detailed knowledge of a business to enable the directors, shareholders and Insolvency Practitioner to agree that a CVA is the right course of action to propose to the creditors.
For a CVA to be successful, therefore, it is vital that the future trade of the company returns to profitability. This will provide funds not only for the working capital of the company but to fund the proposed dividends to creditors, as was the case with the National Hairdressing Training Academy.
