By Lauren Auburn
BRI Business Recovery & Insolvency
THE last 12 months have seen a number of major retailers and large restaurant chains proposing restructuring plans to its creditors using a company voluntary arrangement (CVA). To name a few, the CVA of of Jamie’s Italian was approved in February and, more recently, it was announced that the Italian restaurant chain Prezzo and clothes retailer New Look would be putting forward proposals to their creditors for a CVA.
It is not known why retailers appear to now be turning to a CVA instead of administration. It could be that professional advice is being sought earlier, resulting in there being sufficient time to properly plan and implement a restructure and rescue. In some cases, insolvency professionals are contacted at the eleventh hour when a company is at risk of imminent legal action and/or has just run out of cash, which means that limited options are available. Those options will unfortunately sometimes result in closure.
A CVA is a fairly common rescue option and is used when a company is in financial difficulty but the directors/management team are confident that there is a viable business to save. It may just be that the company needs to restructure to become viable again, or a company could have suffered a bad debt and just needs a bit of breathing space to get back on track.
A CVA is essentially an agreement between a company and its creditors to repay all or part of its unsecured debt over a period, usually between one and five years. A company can offer repayment by way of affordable monthly contributions from future trading profits or from the sale of assets or both.
Below is a summary of the key advantages and disadvantages of a CVA:
* The director(s) remain in control of the company.
* All creditors are bound by the terms of the CVA if it is approved.
* Employee jobs are saved.
* No interest is charged on the debt.
* 75 per cent of creditors (by value) voting in favour of a CVA is required in order for it to be implemented.
* Suppliers may no longer offer credit and will require payment on delivery for goods during the term of a CVA.
* There could be some loss of customers.
* If a CVA fails, a terminal insolvency process is likely to follow, i.e. liquidation or administration.
At BRI we encourage business owners to seek advice at the earliest opportunity as by doing so it will allow time to properly explore all available options; it may even be the case that we can help them avoid an insolvency process altogether.
If you would like to discuss a CVA or any other insolvency process in more detail, contact a member of the BRI team on 01604 754352.