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Company voluntary arrangements ("CVA") - A valuable restructuring tool in a post pandemic world

Chris Tate

CVA’s are often associated with large multi-site retailers seeking to restructure shop-lease portfolios however they are much more than this. The CVA process is essentially a formal agreement between a company and its creditors and can be a helpful restructuring tool for both large and small companies across all types of business if used in the right circumstances. 

CVA’s facilitate the continuation of a company, keeping its business intact whilst restructuring its historic debt, with the following benefits:

•    Enables the company to continue trading
•    Directors retain control of the business
•    Flexibility, can be tailored to suit the company’s own circumstances
•    Binds all unsecured creditors
•    Tax losses preserved for offset against future taxable profits
•    Better outcome for creditors than alternatives such as liquidation

CVA’s are a particularly effective option where viable and profitable businesses are burdened by historic debt.

The current Coronavirus pandemic has adversely affected many businesses which would otherwise be flourishing and profitable businesses if it were not for the pandemic impacting on their ability to trade and generate revenues. 

In response to the pandemic HM Government have provided a raft of business support measures to help businesses survive and minimise business closures. Whilst a welcome reprieve for many, these measures have either led to the deferral of certain liabilities such as VAT, other taxes and rent, or created new liabilities in the form of Bounce Back and Business Interruption Loans. Businesses operating in the worst hit sectors such as hospitality, arts, leisure and retail, will have seen their working capital seriously depleted.

Whilst the pandemic is likely to last into 2021, there is hope that normality will return and many businesses which have been adversely affected will be able to return to profitability in due course. However, as businesses begin to return to profitability, they may find that they simply don’t have the cash available to meet all of these new and deferred liabilities as they begin to fall due for payment. This can lead to increased creditor pressure and the threat of enforcement action.

This is where CVA’s are likely to be worth their weight in gold. A CVA has the ability to restructure a company’s historic debt by way of a formal agreement with creditors, which once approved, prevents those creditors from taking enforcement action.

Moore Recovery UK have an experienced team who are able to advise on the appropriateness of a CVA to your Company’s circumstances. Please contact us for a no-obligation consultation to explore your options.