By Gary Pettit
Managing Director
PBC Business Recovery & Insolvency
WHERE (or is it more appropriate to ask, how) do you shop? Like many, I say that I ‘Man shop’ – know what I want, go to a shop, buy it and leave. My wife will somehow extend that mentality to several hours and, invariably purchase the item from the first shop she visited. However, even that is fast being replaced by her sitting in the comfort of home staring at a screen while shopping online.
Recently, the likes of Carpetright, New Look, Mothercare and the restaurant chain, Carluccio’s have all restructured their business through a company voluntary arrangement (CVA). But what is a CVA? Well, let us start by saying what it is NOT. A CVA is not receivership or (as the media love to incorrectly say) the company has gone bankrupt. No, a CVA is, in essence, a deal with the company creditors. It is saying the company is in financial trouble and if something is not done then the company is likely to fail, taking its creditors with it into the lottery that is administration or, like British Home Stores, liquidation.
I referred to a CVA as a ‘deal’ with creditors and that is exactly what it is. A proposal is put to creditors saying the company is insolvent and unless it restructures its operation(s) then it is likely to go into administration or liquidation; neither of which are palatable options for creditors. The proposal will detail the restructuring to be undertaken and what assets are to be retained by the company while, more importantly to creditors, what is to be put into the CVA. Most times this is contributions from future trading over a period of time but it can include some assets or third party funds, or a combination of all three.
Before readers think this sounds too good to be true there are a few catches. Firstly, for a CVA to be approved you need at least 75 per cent (in value terms) of the voting creditors to say Yes. If that vote included associates (e.g. a directors’ loan) then a second vote is taken to see if a simple majority of the non-associated creditors say Yes. Creditors may also put forward modifications to your proposal that generally seek a higher commitment from the company. If the company fails to meet the agreed terms of the CVA then the penalty is likely to be liquidation, so the sword of Damocles hangs over the company until the full obligations are met.
The key behind a successful CVA is that a viable core business exists and the company is generally suffering short term cash flow issues, which a restructuring of the business will assist the company to overcome. They should not be entered into lightly.
Nobody can really be too surprised at the need for the high street names having to restructure with operational costs increasing (particularly property rents) while retail sales are losing out to online shopping. Quite frankly, it has been on the cards for some time and no matter who you are if you continue to suffer losses it will eventually catch up. All of those retailers mentioned have a core viable business; the trouble is it is over-burdened with debt that must be addressed.
Should you require any advice or assistance with your financial affairs then contact either Gary Pettit or Gavin Bates at PBC Business Recovery & Insolvency on 01604 212150 or email