As a professional, I know the importance of producing content that is not only informative but also optimized for search engines. In this article, we will explore what a CVA agreement is and how it can benefit businesses in financial distress.
What is a CVA Agreement?
A Company Voluntary Arrangement (CVA) is a legal agreement between a company in financial distress and its creditors. The purpose of a CVA is to allow a company to continue trading while paying off its debt over a set period of time, typically three to five years.
Under the terms of a CVA, the company makes regular payments to its creditors according to an agreed-upon schedule, usually through a licensed insolvency practitioner. In exchange, the creditors agree to freeze the interest on the debt and not take any legal action against the company.
Who is Eligible for a CVA Agreement?
A CVA agreement is suitable for businesses that are struggling to pay their debts but still have a viable future. It is essential to note that a CVA is not suitable for businesses that are insolvent, and it is not a debt solution for individuals.
The directors of the company must propose the CVA agreement, which must be approved by 75% or more of the company`s creditors by value.
What are the Benefits of a CVA Agreement?
A CVA agreement has several benefits for companies in financial distress:
1. Can Avoid Liquidation: A CVA allows the company to avoid liquidation and continue trading. This provides the opportunity for the company to recover and become profitable.
2. Provides a Breathing Space: A CVA provides a breathing space for the company to restructure its finances, which can help to reduce costs and improve cash flow.
3. Improves Credit Rating: A CVA can improve the company`s credit rating as it shows the company is taking steps to address its financial issues.
4. Protects Directors from Personal Liability: A CVA protects directors from personal liability by preventing legal action being taken against them.
In conclusion, a CVA agreement is a legal agreement between a company in financial distress and its creditors. It allows the company to continue trading while paying off its debt over a set period of time. A CVA agreement is suitable for businesses that are struggling to pay their debts but still have a viable future. It provides several benefits, including the opportunity to avoid liquidation, improve cash flow, and protect directors from personal liability. If you are a company in financial distress, it is worth considering a CVA agreement to help get your business back on track.