The company is an environmental visitor centre with retail and catering facilities. The company experienced difficulties in respect of an over estimation of its projected income, over expensive and onerous contracts as well as insufficient advertising, promotion and publicity.
The majority of CVAs proposed to unsecured creditors take the form of dividends paid to these creditors at regular intervals over a period of say five years. However these periodic payments are not an essential part of a CVA as is demonstrated by the following example.
In this case the director wished, through the injection of funds, to make a one off payment to unsecured creditors in full and final settlement of their debt. This he found preferable to being tied into a CVA for an extended period, for example five years. It was also considered that the unsecured creditor would find the one off payment preferable to payments over an extended period.
The raising of the investment required careful negotiation. At the same time the bank, the secured creditor, was concerned that it was over exposed. The director had given the bank a personal guarantee to cover 50% of the bank’s lending. The director, in return for a reduction in the bank’s lending, sought a release from the personal guarantee.
An investor was found who invested funds sufficient to acquire 50% of the director’s shareholding. The director paid the bank £1.25m, so reducing its exposure. In return the bank released the director from his £2.5m personal guarantee.
The investment provided both the necessary ongoing working capital for the project and the funds to enable the unsecured creditors receive the one off payment of 25p in £1 in full and final settlement of their claim.
This was an excellent result of careful planning and well thought out negotiation.
Categories: CVA, What is a CVA or Company voluntary arrangement?