Turnaround or Fall Over? Corporate Debt Restructuring through a Company Voluntary Agreement


In the current economic climate most businesses will experience temporary or longer term cash flow pressure resulting in stressful trading and creditor pressure.

Managing creditors within reasonable cash flow parameters is not only an essential part of business operations but also an integral part of effecting a successful turnaround. A business can initially approach its creditors with a view to trying to implement informal revised repayment terms or a “standstill” agreement. Such agreements are achievable in the short term but, one of the issues with informal agreements is that they may not bind all of the creditors and may be neither realistic nor certain depending on the circumstances. It only takes one creditor unilaterally to break ranks for such an arrangement to fail.

Alternatively, a company may use a Company Voluntary Arrangement (“CVA”) to come to a legally binding agreement with all of its unsecured creditors to pay off historic debt over a period of time thereby ring fencing liabilities to allow the company breathing space to trade on. A CVA is a useful restructuring tool where the underlying business is sound, the management are committed to a return to profitability and the continued trading of the business of the company will produce funds sufficient to service the CVA obligations as well as ongoing trading commitments.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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