A CVA is primarily used to rescue a Company providing breathing space from excessive levels of debt. It can also provide protection for a company in temporary difficulties, often in combination with the Administration process.
If a company is unable to pay its debts as and when they fall due in full, then it can propose a CVA to its unsecured creditors.
A typical CVA could include an offer to pay a sum of money into a single arrangement for the benefit of unsecured creditors, secured creditors are excluded from this process. This results in a better return for creditors. Once a CVA has been approved, no unsecured creditor can take any further action outside of what has been agreed in the CVA. Protection against enforcement action by creditors can also be obtained whilst the proposal to creditors is being prepared.