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The possible outcomes

The possible outcomes

  • CVA rejected, accepted or modified.
  • If accepted, it can still fail if the company cannot honour its commitments.

75% in value of unconnected creditors who vote have to vote in favour for the CVA to be approved.

If the requisite majority is obtained then all creditors are bound by it, even if they did not take part in the voting or voted against it.

If the company has one large creditor that is owed over 75% of the company’s total debt then that creditor will have the swaying vote as to whether the arrangement will go through.

Creditors can also put their own modifications forward and if those votes are needed to get the requisite majority in favour then directors may be forced to accept them in order for the CVA to be accepted.

So, for example the company may offer to pay contributions from its trading profits over a period of 4 years. Creditors might insist upon a 5 year term to increase the dividend.

Once the CVA is underway if the company is unable to stick to the terms the arrangement could fail leading to liquidation.

For example if the company was not able to make the profits it predicted and keep up with making its contributions in full and on time it would breach the arrangement.

When things go wrong there are a number of possible outcomes:

  1. The arrangement could fail and the supervisor could be forced to place the company into liquidation
  2. The arrangement could fail but the supervisor does not need to liquidate it, leaving the company back at square one
  3. The creditors agree a variation of the CVA, perhaps agreeing that the contributions are reduced.

David Kirk ACA FABRP

David Kirk

David Kirk is a Chartered Accountant and Licensed Insolvency Practitioner.
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