A CVA is a legally binding agreement between the company and its creditors to repay some or all of the company’s debt over a period of time.
In a CVA the directors remain in control of the company at all times.
An insolvency practitioner, acting as Nominee, assists the company to create a proposal to creditors which is drafted and supported by financial forecasts.
Assuming that at least 75% of each class of creditor, by value of debt, votes in favour of the CVA then it is approved and legally binding on all creditors, even those that didn’t vote or voted against it.
The insolvency practitioner who has been appointed to act as Nominee typically becomes the Supervisor once the CVA is approved. The Supervisor’s role is to ensure that the company adheres to the terms of the CVA, to collect any agreed payment contributions and to distribute those to creditors.
A CVA is a good rescue tool for a company that is viable but is burdened by historic debt. It allows the company to trade on and remain in business. A CVA can also allow a period of breathing space to allow a company to carry out a controlled closure in certain circumstances.
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