WHAT IS A CVA?
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In a word, it's a compromise. A CVA is an agreement entered into by a business and its creditors about how its debts will be repaid, while allowing the company to continue to trade. It is a flexible process and provides for partial or full repayment, depending on what the company can afford to pay. It is only allowed if the majority of creditors, greater than 75% of those voting on the proposal, and votes proportional to the debt, agree to it.
CVAs ring-fence the existing debt and creditors wit receive a dividend on that old debt. They are seen as appropriate when a company has a strong core business and its current insolvency is due to clearly identifiable reasons. They are also viewed as being less controversial than pre-pack administrations because the latter have been perceived as a means to offload creditors, particularly unsecured creditors.
Felixstowe forwarding and distribution business LM Logistics entered into a CVA in No vember 2009, telling the trade press it was preferable to administration because it offered a better return to creditors. However, LM Logistics later went into administration after the CVA failed. More recently Cheshire haulier Pemberton Transport was blocked from entering a CVA by its creditors. CVAs do not come without their critics, who argue that it is simply a fee-earning service for accountants that does not work once the rot sets in and eventually leads to a business being liquidated a few years down the line.