June 2013 eBulletin
Company Voluntary Arrangements – could we make more use of them?
In the present bank lending climate most banks are reluctant to lend to any company with a hint of balance sheet weakness. Could a Company Voluntary Arrangement (CVA) be used as an alternative cost-effective way to restructure a company balance sheet?
The approval of a CVA can achieve immediate business viability, positive cashflow, protection from creditors and a clear future management strategy.
CVA’s can be used to help insolvent companies survive by cutting costs and reaching agreement with their creditors over existing liabilities. A CVA is not an option for a failing business!
A CVA involves a critical examination of;
• historical profits, cashflow and future projections
• incumbent management
• the reasons for the present financial difficulties
• the plan going forward to achieve success
Only 839 CVA’s were approved in 2012 (includes 104 CVA’s for the Southern Cross Healthcare Group). There are over 1700 Insolvency Practitioners which suggest that many of the IP’s avoid dealing with CVA’s. The total number of company insolvency appointments for 2012 was 20,731 and the number of approved CVA’s represents less than 4% of these appointments.
Delicate negotiations often need to be conducted with major suppliers, major customers, company bankers and the Crown authorities which can often result in the success or failure of the plan.
It’s also true to say that CVA’s are not suitable for all companies. The experience of the Insolvency Practitioner is vital to assess whether the CVA procedure is right for a particular company and then to achieve a successful outcome.
It is now possible to apply for a ‘moratorium’ (whereby no legal action can be taken against a company without permission of the court) until creditors have had an opportunity to assess proposals and vote to accept or reject at a creditors’ meeting. This procedure can make the difference between success or failure of the proposed CVA. This process and trading through the moratorium period would be overseen and supervised by the Insolvency Practitioner.
Should you be interested in finding out more about the CVA process and how it may help your or a client company, please call Tim Corfield or Richard Owen for a free, confidential chat.