How Can A Company Voluntary Arrangement (CVA) Help My Business With Its Debts?


A Company Voluntary Arrangement known as a“CVA” can save a struggling company burdened with debts provided it has future profits. If the company can demonstrate that it is able to pay its creditors out of future profits then there is every chance a CVA can be approved by the courts and its creditors.
 
If approved, it binds all creditors who are sent notice of the meeting of creditors and who are all entitled to vote whether or not they actually decided to vote or attend the meeting. This means that after the approval of the CVA¸ those creditors will under normal circumstances, be unable to take any alternative action to recover their debt in full.
 
 Even if a creditor votes against the proposal and nevertheless the proposal is approved by a majority of 75% of creditors by value, then the dissenting creditor will be bound by the terms of the CVA.
 
The IP will send to all the creditors a notice of the meeting of creditors together with a copy of the proposal for their consideration. Typically, the proposal will deal with the various different types of creditors in different manners. Secured creditors cannot have their security overreached by the CVA without their authority. Further creditors will be paid in accordance with the priority as set out above.
 
 CVA Case Study
 
We were contacted by a firm of London accountants to see what help we could do to turnaround group of 13 local mini supermarkets in the London area.
After spending a day going through the company’s accounts and speaking with the directors and management team. We were able to get a better picture than the directors had painted for us. Which is normal.
 
The MD who was the driving force of the company had been in hospital for 4 months, after his return it took time for things to come to his attention like staff not banking the daily takings, daily takings not tallying up at close of business and stock walking.
 
The company had sales of £9m p.a. profits were running at £700k not bad for a small business of this kind. But after our examination we found the company had debts to the tune of £4m inc the bank who had a floating charge for £500,000 to cover its loans and over draft.
 
With the creditors all now applying pressure for outstanding balances and only prepared to deliver stock on cash on delivery. This was very obvious when you take look at some of the stores and the empty shelves.
 
We looked at all the possibilities including a liquidation and a pre-pack sale of the business back to the directors. But it was agreed that the best way forward for the business was a CVA.
 
We managed to persuade the creditors to continue supplying the shops with up to its normal credit limits and in return agreed to pay £0.65p in every £1 over the next 3 years. This was much higher than we would normally recommend (£0.45p) but the goodwill of the business was important to the owners and continuation of supply of stock.
 
To this day 5 years on the business is thriving and has cleared all its debts and has also added another 8 shops to its chain totalling 21 stores which makes it very viable.

Filed under: CVA

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