Creditors will vote on whether or not to accept the proposal. Once the CVA is approved and the liquidator appointed as a director, they will be informed by the court and creditors of a report detailing the information on the meetings held and the votes cast, in order to allow the adoption of the proposal. The proposal is adopted if more than 75% (in value) of creditors who vote or are represented at the meeting vote in support. This is called the required majority. It is based on the value of debts outstanding. For example, when a creditor owes 20% of the total debt, his vote is 20 per cent of the total vote. Once the proposal has been considered by the directors, the IP procedure will write to creditors inviting them to vote at a meeting of creditors. Companies are not obliged to inform their customers of their voluntary agreement. It should not be disclosed on corporate correspondence and is essentially a private matter between the company and its creditors. Unrelenting payment claims are in vain, especially when many creditors are relentlessly pursuing their debts. The CVA process consists of holding a creditors` meeting at which creditors will vote on whether to accept the terms of the AIC. If a CVA fails for any reason, for example. Not with repayments, creditors can take legal action against the company.
This is why it is important to ensure that the terms of the agreement are achievable in the long term for the company and that directors are not under too much pressure to make higher payments than the company can afford. In rare cases, corporate creditors may, as part of the CVA process, push for a change of direction to protect their own interests. A CVA affects the credit quality of the business, making it more difficult to obtain loans from new suppliers and may be more difficult to renegotiate the terms of existing contracts. Given that some of the total debt is written off in the agreement, it is clear that this has negative effects and can make cash flow a problem for troubled businesses.