Company Voluntary Arrangements (CVAs) came to the fore last year in a number of high profile cases. Andrew Duncan, partner at Bridge Business Recovery LLP, explains how deals are being agreed in the retail sector to restructure troubled businesses.

In November, Land Securities and British Land, high street landlords to Blacks Leisure, backed the struggling retailer’s rescue plan by voting to accept a CVA. This corporate restructuring tool is not widely used, yet more than 97% of Blacks’ creditors agreed to the proposal, a move that prevented the leisure retail group from going into administration and saved thousands of jobs.

Industry experts say the arrangement will accelerate the group’s turnaround strategy, allowing it to close down 101 loss-making stores in order to focus on its core business.

In cases where a CVA is utilised, which requires approval by at least 75% of creditors, businesses burdened with debt can continue to trade and pay creditors a proportion of what is owed to them out of future profits. Typically, a business will pay a fixed monthly sum into the arrangement for a period of three to five years, monies that are subsequently distributed to creditors. This can be an attractive proposition for creditors if the alternative is liquidation, where they stand to receive virtually no recovery on their debts.

In certain circumstances whilst the proposal is being formulated, a moratorium can be put in place that prevents creditors from bringing proceedings against the insolvent company. A licensed insolvency practitioner will assist with the proposal and, once approved by creditors, will oversee its implementation.

CVAs have not been widely used since their introduction in 1986, and historically have had a high failure rate.  But last year a number of successful high profile cases, such as retailers JJB Sports and Discover Leisure have demonstrated that they offer a genuine alternative to the administration process.

CVAs offer a number of advantages over other formal processes: 

• They are flexible and can be tailored to the specific circumstances of the company
• They enable owner-managers to retain control of their businesses
• The business is able to emerge from the process intact
• They are transparent and inclusive
• Creditors can approve or reject the proposals, or put forward amendments.

The Government is currently considering legislative changes to the procedure to further encourage corporate rescue. These proposals include the expansion of the moratorium process and giving super-priority to lenders to promote the availability of rescue finance to companies in CVAs. 

In light of these changes, it is likely that CVAs will become more popular with troubled businesses of all types in the year ahead.

For more guidance on debt restructuring, contact Andrew Duncan at Bridge Business Recovery, an owner-managed firm specialising in business reviews, corporate restructuring, funding and insolvency, on 0207 025 6130.