CVA: Is it the right decision?
A Company Voluntary Arrangement, or CVA as it is known, is a formally structured solution introduced to act as a valid alternative to formal liquidation, when company is experiencing serious cash flow problems.
There are many similarities between an IVA an a CVA, but the most obvious difference is that the IVA is for personal insolvency cases, whereas a CVA is designed for a limited company.
A CVA can only be administered by a Licensed Insolvency Practitioner, must be accepted by 75% of the company's unsecured creditors and legally obliges the company to adhere to the terms of the CVA.
The Right Decision?
The company's directors will be required to take the commercial decisions necessary to ensure the ongoing viability of the business is sound.
The new company strategy will be detailed in the CVA proposal and 75% of creditors, in debt value terms, will be required accept the agreement if it is to become legally binding on all.
Once the CVA has been accepted at the Creditors' Meeting, the company's directors undertake to ensure the full terms of the CVA are adhered to, for the full duration of the agreement, which can be anything up to 5 years.
By undertaking the obligations of the CVA they essentially save the company from liquidation which, for a viable business, has got to be the right decision.
Fighting chance
A CVA gives what might otherwise be a viable business the opportunity to avoid liquidation caused by temporary cash flow issues by removing the financial burden of its unsecured creditors.
Whether these issues are caused by unexpected temporary increases to the company's expenditure, or temporary reductions in the cash flow, the CVA offers directors and creditors the platform to 'trade through' difficult times.
This gives the company a real fighting chance to survive through restructuring, preserve the interests of the directors whilst protecting the creditors from more severe losses under a liquidation.
Professional Opinion
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