17 June 2010

A quick guide to CVA’s

A Company Voluntary Arrangement (CVA) is a deal between a company and its creditors; unsecured, trade and tax, to repay them from future profits. Or a deal may be written to sell assets and pay back creditors from the proceeds.

If a company is insolvent the directors must aim to maximise creditors’ interests - by continuing to trade, it will maximise their interests with a CVA.

After the directors have considered the long-term viability of the company it is advisable to take appropriate advice from experienced turnaround or insolvency practitioners.

If a company has a viable future, the directors and management accept the need for change, are prepared to fight for its survival and the appropriate funding can be found, then a CVA is a very powerful tool.

But it is a tough fight and it is often harder than liquidating the business.

By proposing a CVA a company demonstrates it is trying to maximise creditors’ interests so it can often be viewed positively.

If after that the CVA does work then the company will be profitable and valuable for the shareholders.

A CVA may be proposed by the directors of the company. When the company is either in liquidation or administration, the liquidator or administrator can propose a CVA.

A CVA can only be proposed if a company is insolvent or contingently insolvent and in practice, it often takes 7-10 weeks to set up.

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