Pre-Pack or CVA?
For Directors wishing to retain control and recover an insolvent company the choice is pre-packaged administration or a Company Voluntary Arrangement (CVA). In a “pre-pack” a new company acquires the assets & undertaking leaving the original to be dissolved. In a CVA the existing company negotiates with creditors to reduce payments.
| Criteria | Pre-Pack | CVA |
|---|---|---|
| Debt write-off | The new entity will not carry the debts of the old company. | Varies between 10-80% of unsecured debt with repayment of the balance over up to 60 months in equal installments. (Subject to circumstances & creditors’ co-operation.) |
| Property leases, hire purchase etc. | Cancelled or renegotiated subject to personal guarantees. | Continued or renegotiated at the holders’ discretion. |
| Control of the company | The new entity is controlled by the Directors. | Remains with the Directors under the supervision of an Insolvency Practitioner for the duration of its term. Any default may result in liquidation. |
| Consents required | Debenture holders; typically banks & factoring. | It requires the approval of 75% of creditors or more (in value) of those present & voting in person or by proxy. |
| Speed | Creditor pressure may require fast paced agreement within hours. | Usually takes 6-8 weeks to be accepted & recorded in court. |
| Credit rating | Most creditors will require payment up front from New Co. | Some creditors may continue to offer credit. |
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