March 13, 2010
CVA: A Case Study
If your business is experiencing debt problems, it can be hard to know which debt recovery method will suit you best. Many people choose to apply for a Company Voluntary Agreement, and to show how they could help you I have outlined a case study below.
A machinery sub contractors with nearly 50 years trading is the subject in this particular case. They had recently been through a management buyout and had secured a contract for volume manufacturing with a client in the auto trade.
The contract appeared to be extremely profitable and so when it was apparent new machinery would be necessary, the company purchased it and took the hit in the cash flow, as the profit from the contract would more than cover it. However, the projected turnover was not achieved and the company experienced some down time with the machinery- meaning they themselves had to sub contract some work to another company at a greater cost.
These unforeseen glitches lead to serious cash flow problems, and in turn a build up of debt to several secured and unsecured debtors: things seemed bleak for the future of this long running business.
The company sought the help of a debt rescue specialist and decided to apply for a CVA, which was fortunately approved by the creditors. The terms of their particular CVA were that the preferential be paid in full and the unsecured creditors would be paid a dividend of forty seven pence in each pound, and that the contract would be signed over to another company. After this approval the company was able to continue trading and returned to the base of their business, subcontracting for blue chip clients.
The company managed to complete their CVA 6 months in advance and they carried on trading meaning jobs were safe and stakeholders investments protected.
Want to find out more about company voluntary agreements, then visit The Business Debt Advisor’s site for expert business debt help.
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