In what circumstances will creditors support a CVA?

A Company Voluntary Arrangement (CVA) is a solution which the directors of an existing company may potentially propose if the underlying business is viable but the company has suffered from specific issues that can be remedied, perhaps an unforeseen, large bad debt. In many instances a CVA will not be feasible, particularly if the underlying business is not profitable or there are issues requiring investigation, however, where it is an appropriate strategy a CVA can be an effective rescue tool.

The creditors will need to be involved in the process, with the agreement of more than 75% of creditors required for the CVA to be implemented. It is therefore important to talk to key creditors at an early stage. An Insolvency Practitioner can advise you in this respect or undertake negotiations in your behalf. Early advice is essential.

So, under what circumstances are creditors likely to support a Company Voluntary Arrangement?

Keeping the assets in mind

A creditor is likely to support a CVA if the alternative is liquidation of the company, where the return to creditors is likely to be minimal. The CVA may allow a more beneficial realisation of assets or goodwill to the benefit of the creditors as a whole or may permit sizeable contributions from trading that may otherwise not be available. Provided that the proposal is realistic and all parties agree to it, the strategy can be mutually beneficial all round. 

From this point of view, a CVA can make logical financial sense to a creditor in many cases where the alternative could be no return for something which they may have spent years investing in.

The whole process of implementing a CVA may only take 4-6 weeks if all of the necessary documentation is made available promptly. Creditors will need to be kept aware of how the process is running during this time but, provided things run smoothly, they are likely to back the format ahead of one that sees them lose out.

Insolvency specialists

Using insolvency practitioners to help guide you through the implementation of a CVA is essential and Businesses that are struggling in the current financial climate can benefit from seeking advice sooner rather than later.

Corporate recovery specialists can be pivotal to determining the best route to take as they are able to provide intelligent advice that is tailored to your specific sector as well as strong leadership qualities.

There is no automatic moratorium preventing creditors from taking action against the company whilst a CVA is put in place. A small company may be able to apply for an interim moratorium or a larger company may benefit from a moratorium by making an administration appointment first whilst the CVA is put in place. An Insolvency Practitioner will be able to advise on the best course of action and assist with negotiations with creditors.

If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1143.

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