Company Voluntary Liquidations
A company voluntary arrangement (“CVA”) can be used by companies in distressed situations to avoid more terminal formal insolvency processes. A CVA is a statutory contract between a company and its creditors which usually involves a form of debt compromise. Creditors vote on whether to accept proposals for payment (either in full or more likely by way of a percentage of the sum owed) in settlement of the monies owed to them (which could be a single payment or instalments over a period of time). If the required majority of creditors (75% including connected creditors and more than 50% excluding connected creditors) are in favour of a CVA proposal, then allcreditors (bar any creditors holding security, who would typically be excluded) will be bound by it.
The advantage for the company, is it can continue to trade unfettered by creditor pressures and without any need for a potentially damaging terminal insolvency process. For the creditors, it means potentially a greater return then would be achieved through a liquidation. Company’s need, however, to be mindful that embarking on a CVA requires the company to ensure it makes changes to its on-going operations such that it generates sufficient profitability to settle accrued liabilities bound within the CVA and on-going future financial obligations.
