A CVA can be used for insolvent limited companies and limited liability partnerships. It is a rescue procedure which offers a company to come to an Arrangement with its unsecured creditors to repay part or all of its historic debt over a specified period of time.

Apart from the obvious advantages, the other main benefits of a CVA are:

• Company directors and shareholders remain in control of the business
• Consolidates all unsecured debt into monthly payments
• All creditors are bound by the Arrangement. Creditors who did not vote for the Arrangement are therefore unable to take any subsequent action, as long as the terms are adhered to.
• Maintains a healthier business relationship with suppliers. Creditors are likely to receive a between 20% and 100% of their debt.
• Improves cash-flow

To consider a CVA, the company will have to demonstrate that it has a realistic prospect of making profit or raise additional investments to repay what is proposed to creditors.

Directors will need to instruct a Licenced Insolvency Practitioner to assist with writing a Proposal. It is this Proposal that will be sent to the company’s shareholders and creditors to consider at a meeting. The Proposal will require at least 50% of the shareholders and 75% or more of the creditors (who vote) to agree to the Arrangement.

Once approved, all creditors, whether they voted for, against, or not at all, are bound by the terms of the Arrangement. The company must ensure that the terms of the Arrangement are adhered to. If contributions are subsequently missed or terms breached, the Arrangement may fail and the Supervisor may be asked to petition to the wind up the company.