A CVA is a legally binding, contractual agreement between a company and its creditors which usually involves asking creditors to write off a percentage of their debt in return for a repayment of the balance over an extended period of time from the future cash flows of the business.
Creditors, representing 75% of the total value of money owed, must agree to the CVA proposal before it can proceed and once approved the CVA protects the company from further action by its creditors. Although a record will appear on the company credit file (which will impact on the ability to obtain future credit) CVA’s do not tend to carry the same ‘negativity’ associated with other insolvency options (such as administration or liquidation) and they are generally more cost-effective and acceptable to suppliers.
A CVA is an extremely flexible restructuring tool, which has the effect of deleveraging a company’s balance sheet and easing pressure on its cash flow.
When to consider a CVA?
A CVA is not suitable for every company in trouble. It works best if the underlying business is generally sound and profitable and the difficulties are the result of an unexpected problem like a sizeable bad debt, problems in a particular contract or a sudden drop in the market for your goods or services. Directors need to understand why the company got into trouble and how to fix it. Most CVAs involve an element of operational restructuring which may include cost cutting, better targeted marketing or relocation.
A CVA is not an easy option - it requires directors to make and implement hard decisions. In return, creditors are asked to agree to write off up to 75% of the company’s unsecured debt.
SKSi recognises that companies find themselves in financial difficulty for a wide variety of reasons. We will work with you to identify and understand what has gone wrong and ensure that these issues are fully addressed. We will draw up a tailored proposal which will reflect the changes you propose to implement to ensure your business turns the corner and we will present this to creditors on your behalf.
The proposal has to be accepted by 75% of those creditors who vote and so our priority is to provide a compelling case which allows your business to continue, jobs to be saved and creditors to get the best possible return.
During a CVA you remain in control of the business and are therefore fully responsible for developing and delivering the strategies which will improve the performance of the company. SKSi will supervise the CVA to ensure that the terms of the proposal are met by the company. Although a CVA is an insolvency process, we have no obligation to make a report to the Insolvency Service on the conduct of the company’s directors. There is, therefore, no risk of disqualification.