Calls for Reforms to CVA Procedures
Insolvency and restructuring trade body R3 has called for reforms to the current Company Voluntary Arrangements (CVA) procedure to increase its effectiveness.
A CVA is a statutory insolvency procedure that involves an insolvent company and its creditors agreeing the repayment of a portion of the company’s debts over a set period of time. The existing management stays in control of the company, while an insolvency practitioner reviews the CVA proposals and checks the terms of the CVA are met once approved.
Although CVAs made up just 1.8% of insolvencies in 2017, they often involve well-known brands. High Street chains Select, Carpetright, New Look, Prezzo, and Byron Hamburgers are among those reported to have sought or agreed a CVA so far this year.
CVAs have been said by some to have a high failure rate and questions have been asked about their benefits for creditors.
According to a research report commissioned by R3, there should be a cap on CVA lengths, more time for companies to plan a CVA, clearer roles for directors and CVA supervisors, more engagement from public sector creditors, and the introduction of standard terms.
“The CVA system already works well, but changes could see the procedure used more than alternatives, return more money to creditors, rescue more businesses, and improve confidence in the process and wider insolvency framework,” explained R3 spokesperson Adrian Hyde.
“CVAs are a very useful insolvency tool,” he added. “In the best case, when combined with new funding, they can turn around a company and maximise repayments to creditors. Even where they don’t meet all their objectives, they can still see more money returned to creditors than an alternative procedure.”
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