It is no surprise that CVA’s are mainly for SME’s and that the failure rate is high.
They are simply seen as “‘another job” by the IP and a postponement of debt by the directors. Too little attention is paid to the “work out process” and its supervision hence the high failure rate.
All CVA’s should be “proposed” on an agreed introduction of new capital to be set aside with the Supervisor to satisfy the reasonable IP costs, payment in full of the preferential creditors and the dividend expectations of the unsecured creditors, all as per the CVA proposal.
The new investor would then become the only post CVA creditor of the subject company for the capital introduced to satisfy the CVA creditors and any additional advances to provide working capital.
If the proposed new investment is not provided immediately after approval of the CVA, the CVA will fail. If the CVA is approved and the new investment is provided the creditors will look to the Supervisor for their dividends as per the agreed CVA proposal and the subject company will trade on as a newly funded entity.
The CVA and the subject company are effectively separated with actual funds being held by the Supervisor to pay agreed costs and dividends to creditors when the claims when agreed.
My concept will require refinement and new legislation, but it is the framework for a new style CVA to replace the existing format which clearly is no longer fit for purpose.