The CVA first came into being under the Insolvency Act 1986, as an alternative to liquidation, administration or receivership. The act describes the CVA as “a company’s proposal to its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs”.
This has been interpreted widely to allow a company to restructure and reorganize as long as it is in order to ensure that a proportion of the debt can be paid off over time. The Nominee, or nominated supervisor of the CVA, who has to be an insolvency practitioner, has to be satisfied that the arrangement is “fit, fair and feasible” for it to become legally binding.
The law itself is not prescriptive on the contents of the proposal, nor what it should offer by way of a return to the creditors. This is unusual in British insolvency law. However, this means that creative turnaround and insolvency practitioners can help directors build innovative and powerful proposals to restructure VIABLE but insolvent companies.