What are CVAs?
Alan in Cashflow problems | No Comments
As the country enters into a recession, people may encounter yet another term in the language of the insolvency practitioner; CVA (Company Voluntary Arrangement).
A lot of people may already be aware of an IVA (Individual Voluntary Arrangement) where an individual offers a deal to his/her creditors in exchange for avoiding Bankruptcy.
As it sounds, a CVA is the corporate equivalent to the IVA.
The basic principle of a CVA is that the directors of the company will offer (or propose) a deal with their creditors in exchange for the creditors not putting the company into liquidation.
From the creditors’ point of view, some benefits of a CVA are:
• The deal should offer creditors a higher return than they would get in a liquidation
• The company, or at least the business, survives and so allows for future trading opportunities
• All creditors will take an even percentage write off thus making the company a better proposition. All creditors should be treated the same
• There should be trading and cashflow forecasts for creditors to consider, thus providing more information about the company
Some detrimental aspects of a CVA are:
• It is generally more expensive than liquidation although the costs should be taken into consideration when determining the increased outcome for creditors
• The company is left under the control of the directors. An insolvency practitioner will be appointed as Supervisor to the arrangement but that role is only to monitor the performance of the arrangement not the running of the company
