CVA: A Case Study

There are so many debt recovery options available to businesses these days, and it can be confusing deciding whether CVA is the right way to go for your business. So here is a case study to give you a real life example of how they work, which will hopefully help you decide, or at least shed a little more light on the subject.

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 was to be a massive revenue stream for them and so when the need to buy expensive new machinery arose the company purchased it as although it dented their cash flow at the time, they were confident that they would make the money back quickly.. However, as the project progresses the turnover that they initially expected wasn’t reached, and then to add to their problems they began to have machinery problems- meaning some of the work had to be subcontracted, which decreased their profit margin.

These unpredicted problems left the company with severe cash flow problems, which built up to high debts owed to several secured and unsecured debtors, which the company could not pay.

After seeking the advice of a specialist debt advisor the company applied for a CVA which was approved by the creditors. Under the terms of the CVA preferential was fully paid and the unsecured creditors were paid at around fifty pence in each pound. The contract with the automotive business was passed to another company and the company returned to its bread and butter of sub contracting for a number of well established blue chips.

The company managed to complete their CVA 6 months in advance and they carried on trading meaning jobs were safe and stakeholders investments protected.

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