A CVA is an agreement between an insolvent company and its creditors to pay back a proportion of its liabilities over a period of time.
This is a method of consolidating debt and reaching an agreement over how much and when it will be paid. These payments are typically on a monthly basis. They can also start relatively low and increase in terms of amounts later on, after the Company has had a chance to get back onto its feet.
CVAs have benefits to all parties, enabling a Company an opportunity to improve cash flow in order to trade whilst seeking to ensure that creditors receive all or a proportion of their liabilities.
The pre-requisite for a CVA is that the Company is insolvent. Insolvency can either be inadequate cash flow or when a Company’s assets are less than its liabilities. If this has been established, and on the basis that the advice subsequently provided by a professional Insolvency Practitioner is that the CVA is a viable option, the following process is invoked:
If the CVA proposal is accepted by the required majority of creditors, then the Supervisor (who is usually the person who acted as Nominee) implements the CVA in accordance with its terms. If rejected by creditors, then the Company must consider alternative options.
No matter what the reason, if you are experiencing financial difficulties the key is to seek early professional advice.
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