RE: Holder18 Feb 2024 16:27
@dean01:
- The directors of a company can choose to start a CVA process IF the company is insolvent. They don’t need a shareholder vote to start the process.
- In simple terms, once the CVA has been drafted, 3 approvals are required:
1. 75% of creditors responding representing at least 50% of the amount outstanding
2. 50% of shareholders represented at the required meeting or by proxy, note that isn’t the same as 50% of all shareholders
3. A supportive opinion from the appointed insolvency practitioner
- The outcome you describe “All contracts for leases can be exited at nil costs.... all redundancies are nil costs.... all existing manufacturing contracts can be exited at nil costs” whilst shareholders multi-bag is complete fantasy - it can’t and won’t happen.
As I set out in an earlier post the likely outcome of a CVA for shareholders is that they will lose most of their money. In practice this may be because the terms of the CVA (to be agreeable to 75% of creditors) require extra capital to be injected by shareholders, likely via a deeply discounted placing or similar. I don’t think there are any cases of quoted retailers executing a CVA with shareholders remaining intact (let alone multi-bagging!). The company is insolvent - otherwise there wouldn’t be a CVA - so pre-existing shareholders have in reality lost their money before the CVA is agreed. The process simply isn’t there to protect their interests.
The outcomes here are:
1. JD offer recommended
2. Competing offer recommended
3. No offer, company is solvent & continues to work on recovery
4. No offer, company is insolvent & a CVA or similar is implemented
1 or 2 - you’ll likely make money from this point / SP
3 - bid premium will disappear overnight, you’ll lose money from here
4 - you’ll lose money, probably faster
This is a blind punt, albeit an interesting one to watch. Don’t bet the ranch, and don’t fall in love with the idea. And Ignore Toffers nonsense.
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