A company voluntary arrangement (CVA) or an individual voluntary arrangement (IVA) is a process whereby a company or an individual can reach a deal with the preferential and unsecured creditors to vary the timing and/or the amounts due to them, which is binding on all these creditors as long as the majority agree.
CVAs can often be used following an administration to gain the protection and powers of that procedure. Where a CVA is used on its own, the role of the insolvency practitioner is much reduced, with the resulting benefit on costs and public perception.
IVAs can be used as an alternative to personal Bankruptcy and are particularly suited to deal with sole trader businesses suffering financial distress.
Voluntary arrangements are:
- Intended to encourage creative, flexible and practical ways to avoid liquidation or bankruptcy
- They are based upon the close involvement of creditors and it is important to maintain their trust
- They allow a period of protection to implement real business improvements
Innovative uses of the voluntary arrangement procedure include:
- Capturing and managing contingent liabilities in relation to employee claims or long term leases.
- Implementing group restructuring to deal with loss making subsidiaries or divisions.
- Adding acquisitions to an insolvent business as part of a turnaround plan
- Converting debt to equity.
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