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Will Coronavirus revive the CVA?

The CVA (the Company Voluntary Arrangement) has been around since the introduction of the 1986 Insolvency Act. Apart from some high profile multi-site retail examples the process has, however, been used very little. The preferred process for saving businesses has tended to be a going concern sale through administration, typically a pre-pack administration.

However, all of the recent announcements and draft legislation (the Company Insolvency and Governance bill) emphasise steps to be taken to save the company itself as an entity rather than seeing its business transferred to another.

The bill introduces a new restructuring process but, although the details are still going through parliament, it involves a high degree of court input and may therefore be too costly for many small to medium sized entities.

So, has the time come for much wider use of the CVA?

The CVA is a wonderfully flexible process. An insolvent company can make any proposal to its existing creditors and as long as the outcome is better than the alternative (which is often administration and sale of assets with poor result for most creditors), creditors ought to vote for it.

There is a single meeting of creditors (or decision process) and the threshold for acceptance is 75% by value of unsecured creditors. So, a dissenting minority can be overridden.

There are issues with CVAs in that they cannot interfere with proprietary or security rights. We have, however, used the CVA process to negotiate compromises with such secured creditors.

We think that given the clear emphasis and need for company rescue to see the optimal bounce back from Covid restrictions, the CVA process will enjoy a significant revival.

We’re here to help

If you are concerned about your business, PKF Francis Clark can help with a Covid Business Review – helping you to understand your current situation and the best steps forward from there. We have a team of experts experienced in restructuring and negotiating with creditors and our focus is always on rescue and survival.

FEATURING: Stephen Hobson
Stephen is a consultant and a highly experienced Licensed Insolvency Practitioner. He qualified with a large international practice in London working on corporate investigations and… read more
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