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 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.

After keeping up with payments and trading well the company were able to close the CVA early, meaning they were debt free without having to ever cease trading. The company was saved, jobs were not lost and the company continued to trade and turn a profit.

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