Corporate Voluntary Arrangement (CVA)

A CVA is a legally binding arrangement between a company and its creditors to pay a debt, either in full or a percentage of the total, over an agreed period of time.

The key benefits of a CVA are that:

  • it enables the company to continue in business with the objective of improving the creditors’ standing.
  • it eases any pressure on cash flow.
  • it allows greater flexibility for ensuring that the returns to creditors are maximised.
  • it halts any court actions and winding-up procedures.
  • it allows directors to remain within the company.

If problems with cash flow has caused mounting pressure on an otherwise viable company, a CVA could be a practical solution for the company as well as its creditors.

The financial structure of a CVA could be monthly contributions, or a combination of asset realisation and capital injection, supported by a business forecast. It does not have to be the full amount owed, as long as the company has made its best efforts to raise the money, anything is better than nothing. The CVA is approved with the support of the company’s members and creditors within 28 days on average – it should be remembered that a CVA is made to the company, not by the company. When an appropriate amount of funds has been accumulated it will be distributed amongst the company’s creditors. All of the company’s current liabilities will be frozen, as soon as the CVA is in place, enforcement action by pre-CVA cannot be taken.

Preferential creditors must be paid in full before any contributions are allowed to be made to unsecured creditors, the legal rights of preferential creditors are fully protected by law and must not be compromised by any proposal.

Even though secured creditors would not normally vote in a CVA, it is essential that any CVA proposals are fully discussed with them in advance. Secured creditors prefer a solution rather then more problems so they will need to be comfortable with the CVA because they retain the right to appoint a receiver and manager. A provision could be written into the terms of the CVA in case of the company having trouble meeting the payments so a bit of leeway could be allowed. If the company still does not meet its objectives after taking the provision into consideration then it will have to enter into Liquidation. CVAs do not always work out as expected, it really depends on the way the CVA is constructed and the planning beforehand and, in some cases, a little bit of good luck!

Just contact us for free, no-obligation advice to see if we can help you. You have nothing to lose, but a lot to gain.

 

 

 

 

 

 

 

 

 

 

Disclaimer

This website contains general information based on Cyprus law and practice. Please note that it does not constitute legal or commercial advice, nor is it intended to create a client relationship. Neither is it intended to provide a comprehensive or detailed statement of the law or practice.

No liability whatsoever is accepted by Hadjihannas Restructuring Practitioners Ltd for any action taken in reliance on the information in this website. You should not act, or refrain from acting, on the basis of any information posted on our website but rather you should always seek specific legal and other professional advice.

The content of this website, including its design and layout are protected by copyright and other intellectual property laws and may not be reproduced by you without our prior written consent.

© Hadjihannas Restructuring Practitioners.