A CVA is an insolvency procedure which allows business that are having financial difficulties to make an agreement with their creditors to repay all or some of their debts over an agreed period of time.
The procedure can be initiated by the Directors of the business or an insolvency practitioner or administrator; it cannot be initiated by the creditors or the shareholders.
Before a CVA proposal is made an application must be made to the courts which stops the creditors from taking any further action against the company for 28 days. This gives the company time to prepare the proposal without fear of further action.
An insolvency practitioner must be appointed and they must report to the court to decide if a meeting of the shareholders and creditors is to be held to discuss the proposal, at the meeting the decision is made to proceed with the CVA or not. You will need 75% of your creditors to agree to the proposal to make it binding.
If the CVA is agreed, the business can continue trading and repaying its debts within the terms of the proposal.
Who can use a CVA?
A business that wants to avoid liquidation
A business that has suffered trading difficulties but just needs time to get on their feet
A viable business that just needs some time to turn a profit
A business that would be profitable in the short term but pressure from creditors is preventing this
Businesses that have a good relationship with their suppliers and they don’t want them to loose what they are owed
Business that need to restructure or make big changes to the way that they operate.
Businesses that are profitable but have bad debts of their own or whose customers are late payers
Businesses that have a full order book but have cash flow problems
Businesses that want to close down over a period of time
Businesses that want to close down over time having repaid everything they owe
Some of the benefits of a CVA
The business is protected from further action being taken by its creditors
The process allows structured payments to be made
It’s a cost effective insolvency solution which can be used to resolve financial difficulties
Constructive and positive way of dealing with insolvency and debt
The business can continue trading, whilst working its way out of debt
The business is given time to restructure the organisation so that it can return to profitability.