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With an old type CVA there is a limbo
period where the company is not protected from its creditors.
This "limbo" period is usually
about four weeks long - and runs from the date the proposal
is filed in court to the day of the creditor's meeting at
which the CVA proposal is considered.
In this period creditors action can continue
against the company
For example:
- The company bankers on reading
the proposal could decide to immediately appoint their "own
man" as Administrative Receiver.
- Financial companies would be
alerted to the company's difficulties on reading the proposal
and might then seek to repossess the assets subject to the
financial agreements.
- A winding up petition could
be heard, and the company could be placed into liquidation.
All or any of such example events
could result in the CVA proposal being a non-starter. In periods
of severe stress then a new CVA ought to be proposed so as
to gain the benefit of the moratorium period.
An old type CVA will still be appropriate
for cases where such potential problems could not arise.
As with all things it is a question
of balance weighing the pro's and con's of each type of CVA
to the particular circumstances of the company.
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