As a professional advisor you may often be asked about the options to rescue and turnaround a struggling client. A company voluntary arrangement or CVA is a powerful tool that was introduced in 1986. The Government wanted to see more viable companies rescued and continue to trade.
Many insolvency firms ignore this option preferring the control and the larger fees of administration It requires creativity, determination and often hard work to drive a CVA rescue through.
With many companies struggling with debts built up in the recession, they often feel they are carrying a “ball and chain” of debt around behind them. As hard as they try to grow, the “legacy debts” of the survival course they managed to negotiate, can end up killing the company.
Using a CVA some of this debt can be discounted (or compromised), but just as important the debt is deferred with a legally binding moratorium. This can buy the time they need to reorganise.
Powerful CVA case law allows the removal of employees and the termination of onerous contracts such as property, shops, motor vehicles and so on, without the company having to pay redundancy cost or termination fees.
Using a CVA the ball and chain can be cut free and the business can recover. Still there are hurdles and creative use of Hive Downs and refinancing can avoid the stigma of pre-pack administration which is now being slowly legislated against as a restructuring tool.
The directors of KSA Group have been writing company voluntary arrangements since 1995, in that time we have worked with almost every type of company with many of the common problems referred to above. This tool is useful for small, medium or large companies., it is a reasonably quick process and can be very cost effective.
Much maligned and misunderstood the CVA is great framework for recovery of a viable business, but is of course no panacea.