A CVA is a Company Voluntary Arrangement with its creditors, which allows the business to pay its debts off over time whilst turning its business around.
In most cases a businesses creditors do support businesses choosing to enter a CVA as the other option is simply to liquidate the business in which case the creditors may receive little or no repayment of what they are owed. The CVA however must be reasonable and achievable.
CVA’s can only be used if a company is insolvent but is still viable, the CVA proposal must also be approved by 75% of the businesses creditors. Once approved the CVA forms a legally binding agreement that binds all creditors to the agreement whether they voted in support or against the CVA.
The purpose of a CVA is to rescue the business whilst also being in the best interests of their creditors.
The CVA can either be started by the company directors or a Liquidator or Administrator, once the decision has been made to enter into a CVA the procedure needs to be run by a Licensed Insolvency Practitioner. During the process the company and its positioning in the marketplace will be assesed and a proposal will be drawn up. The Directors of the business and the creditors will have the opportunity to discuss this proposal, once the proposal has been agreed the proposal needs to be signed off to ensure that it is accurate, reasonable and achievable.