Company Voluntary Arrangements are going to be vital in providing a launchpad for the UK economy’s recovery over the coming months and need strong backing across UK plc, according to a leading insolvency practitioner. A Company Voluntary Arrangement (CVA) is an insolvency-avoidance process where a debtor agrees a repayment plan with its creditors over a specific period of time, which is then ratified if 75% of creditors vote in favour of the proposal.
The process has been attempted by struggling retailers in recent years – such as Debenhams, Monsoon and New Look – to either terminate their renting lease or renegotiate new leases – opening the process up to criticism from some landlords who often feel short-changed.
However, Adrian Hyde, partner at restructuring and insolvency firm CVR Global, said the financial damage caused by the Covid-19 pandemic is set to spark a wave of new administrations or liquidations unless businesses go down the CVA route, and is urging those against the process to think carefully about the long-term consequences of voting against them.
Hyde commented: “We need to see a mentality shift on the topic of CVAs from being a process that is being abused by financially-stricken companies to get out of trouble, to one that is going to be crucial in helping this country’s economy to stabilise and thrive in the long-term.
“While it is true that a CVA can potentially disadvantage some creditors, the process is there to preserve as many feasible businesses as possible.
“The vast majority of businesses will turn to using a CVA as a tool to negotiate new terms with creditors just to survive in the long-term – and this approach is only going to gather pace post-Covid as the Government’s financial support winds down.
“It’s important that UK plc embraces the CVA process because in the long run it is going to help more businesses who stand a strong chance of recovering to stay afloat, resulting in creditors eventually receiving all or part of the money that they are owed.
“Businesses across the country have received remarkable financial support from the Government in recent months, but that can only go on for so long, and for many businesses who feel they can trade their way out of this crisis but just need time, then a CVA could be their best solution.”