Company Voluntary Arrangement (CVA) Vs Time to pay agreement – What’s the difference?

The following article outlines the differences between a Company Voluntary Arrangement and a Time To Pay Agreement. It includes instances where a Company Voluntary Arrangement would be best utilised by a company experiencing financial distress and in what specific circumstances a Time To Pay Agreement would be more appropriate. 

However, in all instances and throughout the article, we underpin our suggestions with the strong recommendation that a company director experiencing financial difficulties should consult an insolvency professional as soon as possible. An initial meeting will always be free and with the depth of the insolvency professional’s experience, it may be possible to recover a business experiencing financial difficulties. If there is a delay in seeking advice, pressure could mount on the company, which will restrict the options available to it and make the need for a formal insolvency/closure of the business more likely. 

Chamberlain & Co have been established for over 20 years and liquidations and administrations have been core services throughout. We work very closely with clients, making the process as stress-free as possible, regardless of how complex the problem is. We offer an in-house team of award-winning, dedicated professionals who specialise in insolvency, restructuring, rescue and business turnaround. 

WHAT’S THE DIFFERENCE BETWEEN A COMPANY VOLUNTARY ARRANGEMENT (CVA) vs A TIME TO PAY AGREEMENT (TTP)?

A Company Voluntary Arrangement (“CVA”) is a contract between a company and its creditors which agrees on how the company’s debts will be resolved. The company will prepare, with the assistance of an Insolvency Practitioner, a proposal to its creditors which contains an offer of full and final settlement of its indebtedness. 

A Time to Pay agreement (TTP) is a specific agreement between a company or an individual and HMRC. It is appropriate if the company’s only or primary debt is with HMRC – be that VAT, PAYE or other applicable tax. If suitable, a company or individual can approach HMRC directly to negotiate an arrangement to repay their debts. 

HMRC will want to see the company’s operating records such as cash flow forecasts and management accounts and have access to third-party advisors such as the company’s accountant or insolvency practitioner, if applicable. HMRC will also require that any future payments such as future tax liabilities are paid as and when they fall due. 

A TTP usually operates for a maximum of 12 months, although in certain cases HMRC may allow an extension, particularly in light of the Coronavirus Pandemic, but this is rare and subject to the unique circumstances of the company. HMRC will also consider payments made by the company, such as director remuneration, and would want to see shareholder dividends ceased throughout the TTP’s duration. 

WHAT IS A CVA or COMPANY VOLUNTARY ARRANGEMENT? 

A Company Voluntary Arrangement is a contract between a company and its creditors which agrees how the company’s debts will be resolved. The company will prepare, with the assistance of an Insolvency Practitioner, a proposal to its creditors as an offer of full and final settlement.

Whilst the terms of the offer are not prescriptive, it will normally include monthly contributions from surplus trading income, and the realisation of any assets not required by the company to undertake its ongoing operations.

The exact proposal made will usually be discussed and agreed with an Insolvency Practitioner, who will work with the company to ensure that the proposal is fair, and complies with legislative and best practice guidance. 

WHAT IS A FORMAL TIME TO PAY AGREEMENT?

This is not a formal insolvency procedure. It is an established procedure between HMRC and companies/individuals in which HMRC agree to defer outstanding historic taxation in exchange for an agreed repayment schedule, which must be maintained. Companies entering into a TTP are not considered insolvent if they meet the requirements of the agreement, and the existence of a TTP can be considered as evidence that a company is not trading whilst insolvent, assuming that it is adhered to and other debts are not ignored.  

Early and transparent consultation with HMRC is key. HMRC are likely to be more open to suggestions if the application for a TTP is made early in the debt history. Longer-term arrears and non-payment are less likely to be considered for TTP. HMRC also takes a dim view of companies/individuals who are not up to date with their tax submissions, and this can damage the prospects of a TTP being agreed upon. 

WHAT ARE THE ALTERNATIVES TO A CVA?

As mentioned above, if the company’s primary debt is with HMRC, then a TTP would be more suitable, as it avoids the cost and expense of a formal procedure, such as a CVA. Other measures to consider could be debt restructure and re-financing and also generally good practice in reducing operating costs such as reducing staffing numbers. Companies in this position should also ensure their pricing structure is high enough to cover their operating costs. We find that under-charging for work is a common occurrence, leading to limited profitability. 

IS A CVA A SCHEME OF ARRANGEMENT?

No, a Scheme of Arrangement is a separate process under the Companies Act of 2006, whereas a CVA is undertaken under the provisions of the Insolvency Act 1986.

A Scheme of Arrangement helps the company to restructure its debt to relieve financial distress. It is not an insolvency process, but it must still be sanctioned by a court process.

Once voting has taken place and the required number of agreements from the creditors is reached, the arrangement is binding to all parties, irrespective of how they voted. 

IS A CVA LEGALLY BINDING? 

A CVA is a legal procedure and is a legally binding agreement between the business and its creditors. It sets out how repayments of company debt should be made to creditors and can deliver a better outcome than an administration or liquidation. Administration vs Liquidation – What’s the difference?

WHAT HAPPENS WHEN A COMPANY GOES INTO A CVA?

The process is overseen by an Insolvency Practitioner (IP) who, if the CVA is approved, is appointed as Supervisor of the agreement. As the name implies, their role, post appointment, is in the supervision and implementation of the terms of the CVA, to ensure that both the company and its creditors abide by the agreed terms. What is an Insolvency Practitioner?

They ensure that the debtor company observes and complies with the terms of the agreement. The IP will liaise with creditors on behalf of the company, agree terms and any repayment schedules as set out within the CVA proposal, and will make payments on behalf of the company as per the terms of the proposal. As long as the terms of the agreement are met, then this is considered to be a less invasive process. 

However, it is crucial to make full disclosure to any insolvency professional working on your case. If something remains undisclosed and comes to light during the course of any agreement, then the IP is obliged to take remedial action, ranging from seeking the agreement of creditors to a variation of the arrangement, which is not guaranteed, or ultimately winding up the Company. 

WHAT IS A PRE-PACK CVA? 

There is no specific procedure known as a pre-pack CVA. However, there is a procedure known as a pre-pack administration where the marketing to sell the company in question is done before the administration order is made. This means that once an administrator is appointed, the company is sold straight away, which in turn, allows legal proceedings to be dropped and pressure from creditors ceases. One of the exit routes from administration is for a company to propose, and if agreed to, enter into a CVA. This may be appropriate depending on the company’s unique circumstances. It may mean entering into Administration first, to protect the company’s assets, whilst a CVA is then formulated. 

Our policy at Chamberlains is that we always recommend that any individual facing financial difficulties seeks out an Insolvency Practitioner to help them decide on the right path for their circumstances.  

Any insolvency professional will be a licensed expert and regulated to dispense advice and initial consultations are always free. 

Chamberlain & co offer a discreet, free initial consultation and can be held via telephone, face-to-face meeting, or through a digital medium such as Microsoft Teams. All matters are discussed confidentially, and the team undertakes the utmost discrete enquiries when working with you to produce a strategy to resolve your issues. 

As with all insolvency practitioners, Chamberlain & Co are committed to delivering the best advice in all scenarios, and the team’s work has been recognised regularly at the Yorkshire Accountancy Awards and Turnaround, Rescue and Insolvency Awards. 

You can contact us by calling 0113 242 0808; by emailing us at advice@chamberlain-co.co.uk or by completing our online contact form here.