If a company has a viable future but is being hampered by historic debt then a CVA may be a sound solution. A CVA is a deal between the company and its unsecured creditors to repay them from future profits or a deal may be written to sell assets and pay back creditors from the proceeds.
The typical CVA proposal is based on preserving the company, so that something is paid to creditors over a period of time. Directors remain in control of the company, personal guarantees usually don’t get called in and it gives the business a fighting chance to survive.
Unlike an Individual Voluntary Arrangement, a CVA does not have a pre-determined term of 5 years, indeed every CVA is different and a sensible time frame should be set.
Generally, some flexibility is built into the structure on timing of payments within the terms of a CVA, however, if the company cannot keep up with payments and a further proposal is not agreed by the Creditors to vary the terms of the CVA then the company will have no alternative but to pass into Liquidation and usually this is done by a Creditor driven Winding up Order.
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