What is a CVA good for?
- Rescuing the company / avoiding liquidation
- Giving the company the opportunity to write off debt that it cannot afford over time
- Allowing the directors to keep control of their company
- Ringfencing out creditor action
If you have a business that has had cashflow problems but has/is able to make changes to overcome this in the future then a CVA can be a useful tool to draw a line in the sand, freeze existing debt and allow a company to continue to trade.
The company will need to sell assets or make contributions from its profits to be able to pay the creditors back a dividend but this will usually be more than creditors would receive if the company were to cease trading and enter liquidation.
The directors get to keep control over their company – the supervisor merely supervises to make sure the company sticks to the terms of the arrangement.
In the right circumstances a CVA can be a better alternative to liquidation and once a CVA has been put in place all creditors are bound by it and no legal action can be continued with.
If necessary, an Interim Order can be obtained by the courts preventing such action from taking place and allowing the directors and IP more time to put the proposals together and call the necessary meeting of creditors to consider them.