CVAs ‘should be reformed’ to improve chances of success

R3 Midlands chairman Chris Radford

Company Voluntary Arrangements (CVAs), the restructuring mechanism which has come back into the spotlight because of the pressure on retailers and restaurants, should be reformed, according to trade body R3.

CVAs have been used in recently by a number of high street names including Prezzo, Carpetright, New Look and Byron.

Research commissioned by R3 and carried out by Wolverhampton and Aston universities, has made five recommendations to improve the perception and performance of CVAs.

It follows the findings that 65% of all CVAs agreed in 2013 have been terminated without achieving their objectives.

The key reforms put forward by R3 are that CVAs should be capped at three years, a pre-insolvency moratorium should be introduced, the duties and roles of directors and insolvency practitioners need to be more clearly defined, public sector creditors should be made to explain why they are reluctant to accept CVAs, and standard CVA terms should be introduced.

R3 Midlands chairman and Gateley partner Chris Radford said: “When combined with new funding, CVAs can turn around a company and maximise repayments to creditors.

“Even when they don’t meet all their objectives, they can still see more money returned to creditors than an alternative procedure. They also give creditors a direct say in an insolvency process which is much more transparent than alternative procedures, such as a ‘pre-pack’ administration.

“CVAs can be criticised, particularly given that not all of them meet their objectives and creditors can feel like they have been left out of pocket. Ultimately, however, we’re talking about insolvent companies, and without procedures like CVAs, the outcomes for creditors would be worse.”

The research also found that the public sector organisation least amenable to CVAs is HMRC.

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