The CVA Proposal is produced by the directors and an insolvency practitioner. The creditors then get to vote on the proposal. Not all creditors may wish to support the CVA, but once sufficient support (over 75%) has been obtained, all creditors will be bound by the CVA. This includes creditors who didn’t vote as well as creditors who may have been unaware of the CVA Proposal.
Dissenting creditors have 28 days from the date that the CVA was agreed, or from when they learn of the CVA to apply to court in order to have the CVA set aside.
From the point of view of a company director experiencing financial difficulties, a CVA may be especially beneficial if you want to continue trading and don’t want to lose ownership or control of the company.
Many CVAs last for 5 years with the company paying monthly contributions into the CVA.
Some suppliers may be reluctant to trade with a company trading under a CVA; in such a case, it may be that supply is on a cash on delivery rather than on a credit basis.
A CVA is seen as a rescue mechanism where the directors (and their advising Insolvency Practitioner) believe that the company is viable and can be saved.
However, if the company’s contributions into the CVA are not made on time or stop, then the CVA may fail and the company could be placed into Liquidation or Administration. Furthermore, any amounts that the company owes to creditors for purchases after the CVA is in place will need to be paid on time; as creditors can take enforcement action against the company for these debts in the normal course of business.
CVAs are a brilliant rescue mechanism for companies which are worth saving but are going through financial issues!