Is a Company Voluntary Arrangement right for you?

Donald McNaught

Donald McNaught

Restructuring Partner

Just over a year ago, our Restructuring team commenced Company Voluntary Arrangements (CVAs) for a group of three companies which, together, formed a well-known and long-established Scottish travel business. 

The purpose of those CVAs was to provide breathing space to allow the directors to sell key assets to repay creditors, with the business having come to a grinding halt due to the COVID-19 pandemic.

It is now certain that the first of the three CVAs will pay creditors in full, and the outlook remains positive for the others.

While this is a non-trading case, the main conclusion I would come to is that the success has been largely down to the hard work and energy of the directors. Firstly, in securing creditor support for the proposals at the outset and then secondly, their determination thereafter in implementing their plan to repay creditors. It is a credit to them and is useful insight as to what is necessary to make a CVA successful. Otherwise, it could simply be an alternative route to liquidation.

We have successfully completed CVAs in other sectors (retail, digital and telesales marketing) and have found them to be a hugely flexible tool that has allowed a viable business to survive where others have failed or, in worst case scenarios, allowed the directors to secure an orderly wind down of the business under their control.

That last point is often the most persuasive. A CVA ensures the directors remain in control, giving the added benefit of reducing the costs incurred by the insolvency practitioner’s firm. It is a relatively light touch approach.

A CVA will not be suitable in all circumstances but if you believe certain key requirements are met, it is certainly worth exploring before contemplating other, more severe, restructuring or insolvency options. Below are some key questions that you should consider:

  • Are you under creditor pressure and likely to lose control in the short term?
  • Can you identify what has happened in the past that has led to your current trading or cash flow difficulties?
  • Have you addressed those issues, or can you do that going forward with the benefit of breathing space?
  • Will your business return to profitability?
  • Can you realise assets or make cost savings?
  • Will your creditors support your proposal?
  • If you can postpone creditors via a CVA, can you fund ongoing working capital requirements?
  • Will it offer creditors a better outcome than liquidation?
  • Do you and your management team have the energy and enthusiasm to see this through?

We regularly speak to directors about their options and while a CVA is often discussed, regrettably it is usually too late to implement it. 

What should I do now?

It is never too early to seek advice, even if informally. We are happy to speak to directors on a no-obligation basis about their options and our objective is always to achieve the best outcome for all stakeholders. Please don’t hesitate to get in touch with myself, a member of our Restructuring team, or your usual Johnston Carmichael adviser to discuss this further.

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