The number of firms using a controversial form of shake-up to get through a rocky patch has rocketed 85% this year – but what exactly are Company Voluntary Arrangements?


The first few months of 2018 has been carnage for the high street, with a number of retailers reporting tough trading and some – including Toys R Us and Maplin – going bust.

But the start of the year has also seen a wave of firms trying to slash their outgoings by bidding to close unprofitable shops or asking store landlords for rent reductions.

Most have used a technique called a Company Voluntary Arrangement – or CVA – to do so.

Store owners would rather back CVA than have shops left empty

But what are CVAs, who has used them, and why?

Q: Which firms have used CVAs this year?

A: They include New Look, Carpetright, Jamie’s Italian, Prezzo and Byron burger, with House of Fraser and Mothercare expected to follow suit soon.

Q: Have they been on the rise?

A: Figures from the Insolvency Service showed there was an 85% leap in the number of CVAs in the first three months of this year.

Mothercare said to be considering CVA

A total of 102 were issued between January and March, compared with 55 in the final three months of 2017. In the first quarter of 2017 there were 85.

Q: So what exactly is a Company Voluntary Arrangement?

A: It is a formal agreement between a company and its creditors to pay all or part of the amount owing.

The proposal is made by the directors with the assistance of a licensed insolvency practitioner or by an administrator.

R3, the restructuring trade body, explains: “The procedure is extremely flexible and the form which the voluntary arrangement takes will depend on the terms of the proposal agreed by creditors.

“For example, a CVA may involve delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets.

House of Fraser set to announce store closure plan

“CVAs can also be used to renegotiate the terms of a lease.

“A vote is held to consider the proposal and more than 75% by value of creditors who vote on the proposal need to approve it.

“It then becomes a legal binding agreement on the company and on the creditors even those who may not have agreed to it.

“Once the CVA is concluded, any remaining debts are written off.”

Q: What are the timescales involved?

A: R3: “Creditors are sent the proposal and accompanying formal paperwork for consideration and vote on its approval or rejection.

“This vote will take place on a set date between 14 and 28 days of creditors receiving the documentation.”

Q: Who are the losers from CVAs?

A: All of the high profile CVAs proposed this year have been approved.

One reason is that creditors, especially store landlords, would rather have less of something than virtually nothing if the company went to the wall.

However, Toys R Us only just managed to secure a CVA just before Christmas last year in what proved to be a stay of execution for the UK arm of the firm.

Meanwhile, there is growing unrest among store landlords that they are being asked to take a hit for companies that signed up to leases and are now wanting to break the terms of the deal.

Q: CVAs are just one type of insolvency. What are the others?

A: CVAs fall under the broad heading of insolvency which range in severity.

The bulk of those in the first three months of this year are what are called Creditors’ Voluntary Liquidations.

CVLs are where shareholders, usually at the directors’ request, decide to put the company into liquidation because it is insolvent.

The circumstances are usually if the firm can’t afford to pay its debts or have more liabilities than assets.

Prezzo is set to close a third of its restaurants

The alternative to a CVL is a Compulsory Liquidation, when the company is ordered by a court to be wound up.

Apart from those, the other big type of insolvency is administration.

This is when a company is deemed to be insolvent and is put under the control of a court appointed administrator.

Doing so stops all legal action against the company.

Going into administration doesn’t necessarily mean the death of the company.

A new owner – or even the existing one – can buy bits or all of the company out of administration.



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