A Company Voluntary Agreement (CVA) is a legal agreement that allows companies in financial difficulty to reach an agreement with their creditors. It is a formal process that enables a company to restructure its debts and stay in business.
The CVA process is initiated when a company is facing financial difficulties and cannot pay its debts as they fall due. The company`s directors can propose a CVA to its creditors, which will involve a payment plan over a period of time. This plan is usually set up with the help of an insolvency practitioner, who will act as a mediator between the company and its creditors.
Once the CVA proposal has been agreed upon, it must be approved by 75% of the company`s creditors. Once approved, all creditors are bound by the terms of the agreement, and the company can continue trading.
There are several benefits to a CVA. Firstly, it allows the company to continue trading and avoid liquidation. Secondly, it allows the company to restructure its debts and maintain cash flow. This is important because it allows the company to pay its creditors without jeopardizing its ability to carry out its operations.
Furthermore, a CVA can be a more attractive option for creditors than liquidation. This is because creditors may receive a higher proportion of their debts through a CVA than they would through liquidation.
For a CVA to be successful, it is essential that the company has a viable business plan. This plan should demonstrate how the company will return to profitability and repay its debts.
In conclusion, a CVA can be an effective solution for companies facing financial difficulties. It allows the company to restructure its debts and continue trading, while providing creditors with a more attractive option than liquidation. However, it is important that the company has a viable business plan for the CVA to be successful.