What if the company starts building up more debt whilst in a company voluntary arrangement?

This is obviously not a situation that should occur as the company is planning to return to profitability.

However any new debt that the company builds up is not subject to the arrangement and all legal processes for recovery are valid.   If the supervisor of the CVA, an insolvency practitioner who oversees the arrangement once it has been agreed, believes that the business is no longer viable he has the power to wind up the company.

A preferred solution is that the supervisor may work with the board to revise the CVA and then call another  meeting of the creditors to seek approval of an amendment to the proposal.  This is more common in larger CVAs where the situation is more complex.

Can a company in a CVA get credit?

This can sometimes be difficult in that the company has no official credit rating. If this is a big problem for some suppliers, or the ability to tender, the business can be “hived down” into another company which has a clean credit rating.  See our guides to hive downs

What happens at the end of the period? The company is a better business than it was at the start!  It has traded through difficult times and in many cases will continue to grow and pay a dividend to the creditors.  In many CVAs if the company makes more money than expected then there is what is termed a “profit ratchet” built into the proposal.  This will mean that a higher dividend is paid to creditors.

 

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