Understandably, given the dire economic circumstances seen in 2009, it has been a boom-time for the insolvency profession. But it’s not all been about job cuts, unpaid creditors and lenders losing out.
CVAs (Creditors Voluntary Arrangements) have become a popular instrument to help struggling businesses – particularly retailers – restructure while remaining solvent. It allows a company to propose turnaround plans to its creditors. If approved, it enables the firm to continue trading on the understanding it repays an agreed percentage of any outstanding monies over a set period of time.
Some property landlords are less than enthusiastic about CVAs but it is often a better alternative than administration. Creditors frequently include landlords and some of the UK’s biggest have recently found that it is better to receive less than their full entitlement than no entitlement at all.
The consequences of administration or liquidation can be far more damaging. For example, the company can quickly lose its value, while job losses and branch closures are often an unfortunate inevitability. The amount of money that can be recovered from a company trading on through a CVA is invariably more than that from a company in administration or liquidation.
Over the last 12 months, high-profile companies entering CVAs have included JJB Sports, DIY chain Focus, Blacks Leisure and fashion retailer Flannels. Focus said the CVA would allow the firm to safeguard all 4,572 jobs across its trading stores and support centres.
CVAs are a valuable tool rather than a long-term solution. They ensure businesses remain open in the short time, which is an achievement for some. But businesses requiring CVAs in the first place usually have underlying problems which need addressing.