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Why is a Company Voluntary Arrangement (or CVA) also a “rescue procedure”?

A CVA is a written contract entered into by 75% or more (by value) of the unsecured creditors of an insolvent company, but which binds 100% of the unsecured creditors.  The terms of the CVA usually involve the unsecured creditors agreeing to write-off and delay payment on some of the debt owed to them by the company.    

 

CVAs leave directors in control of the business, and they are not subject to investigations of their conduct (unlike in an administration or liquidation).  However, where a CVA fails, the company will usually end up in administration or liquidation in any event.

 

The Supervisor of a CVA will be an insolvency practitioner.  The Supervisor will have assessed the terms of the CVA and stated to the court that creditors are likely to get a better return from the CVA than if the company entered insolvent liquidation.  The Supervisor's role is to ensure that the directors comply with the terms of the CVA and to swiftly place the company into administration or liquidation if there is any breach of those terms.

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