There are various reasons why a CVA may fail. An unforeseen deterioration in the company’s trading conditions, unanticipated increases in costs, or the repayment terms originally agreed upon by the company and its creditors no longer being economically feasible can cause the agreement to collapse. A CVA may also terminate if the company fails to comply with its obligations contained within the terms of the CVA.
Therefore, it is essential to monitor the financial status of the company during the period of the CVA and seek professional guidance at the earliest sign of difficulty. However, if things do reach a point of total failure, you need to know what happens if a CVA fails and what to do about it.
What Happens If A CVA Fails?
The consequences resulting from a CVA terminating vary based on the terms of the CVA and the reason(s) behind its termination. Nevertheless, after a CVA terminates, creditors normally retain their right to take enforcement actions in respect of monies owed to them.
Depending on the specific circumstances, such enforcement actions may include commencing litigation to recover debt or presenting a Winding-Up Petition to wind up the company.
It is critical to note that failure of a CVA does not automatically mean that the company will have to close down. Depending on the company’s financial situation and whether there is still life in the business, there may be other business rescue avenues open for consideration.
Alternatives to a Failed CVA
An Insolvency Practitioner will consider all relevant information relating to the company’s current circumstances and will then consult with the directors regarding all possible alternatives available in relation to a CVA which has failed.
Where part or all of the business is capable of continued viability, Company Administration may provide necessary time for options for either rescuing or restructuring parts or all of the company to be investigated. During the Administration process, no further creditor recovery action may be taken.
In certain situations, a new CVA may be negotiated before termination; however, this would require agreement from all parties involved and would depend on the exact circumstances and any existing agreements.
Should the company not remain viable, Liquidation may become necessary. Liquidation entails closing down the company in an orderly manner and ensuring all aspects of its business and all its financial obligations are dealt with through an approved Insolvency Process.
Obtain Expert Guidance Immediately
A failed CVA can be a severe outcome for your business. However, it doesn’t always signify that there are no alternatives available. Exactly what happens if a CVA fails depends a lot on the exact circumstances, so it is extremely advisable for company directors who find themselves in a similar position to act promptly and seek expert guidance.
You can get in touch with us at Ballard Business Recovery today. Our team will help you to understand the different options available to you in a way that you fully understand and walk you through the best business rescue strategy available to you.
