The original company continues to trade protected by a legal moratorium whilst a recovery plan is prepared for its viable continuity. This includes the return of a proportion of the debt (e.g. 30% over 5 years) to creditors supervised by an Insolvency Practitioner (the Supervisor).
A CVA proposal must offer a greater return to creditors than they would obtain from liquidation; often scheduled over five years and/or geared to profits. The arrangement must be agreed by a 75% majority in value of those creditors that vote on the day. A CVA usually takes 6-8 weeks to be accepted & recorded in Court. Until the CVA is concluded any default of its terms may result in liquidation.
The Company Voluntary Arrangement process requires a realistic business plan with financial projections for creditors’ approval. In the event that a CVA is rejected by creditors, recovery by a Pre-Pack Administration may still be possible.