CVA changes given thumbs by region’s insolvency practitioners
YORKSHIRE insolvency practitioners are praising the decision to make it easier for businesses to renegotiate their debts through a Company Voluntary Arrangement (CVA).
In a survey by insolvency trade body R3, around three-quarters of insolvency practitioners in the region said all companies trying to agree a CVA should be givenb protection against creditors.
A CVA is where a company comes to an agreement with creditors to reorganise its debt. Currently only around 500 CVAs are completed each year.
Currently, only small firms can apply for a moratorium to protect them against creditor actions.
One of the issues is that a CVA does not offer medium and large companies the same protection as administration. During the process of agreeing the CVA they are vulnerable to action creditors and risk being wound up.
However, their profile has risen significantly in the past few months following the CVA of JJB, Discover Leisure and more recently Focus DIY.
The Government is now proposing a 42-day moratorium period for all companies entering a CVA.
Around 75% of respondents in the R3 survey said that it would be helpful for larger firms to be allowed a 28 day moratorium period. However, 67% backed the Government’s specific proposals.
When asked why so few CVAs are agreed 60% of respondents agreed that it was because company directors preferred to go into administration or even wind the company up altogether. The majority (80%) said that often directors did not seeks help soon enough to make a CVA a viable option.
Andy Wood, Yorkshire regional chair of R3 and partner in THE P&A Partnership in Sheffield, said changes to the rules, as well as recent examples, could encourage more companies to choose CVAs.
“CVAs are a good rescue tool, helping businesses which are profitable in the long-term overcome a period of financial difficulty, but the current rules deter many companies,” he added.
“A ‘safeguarding’ period, where both the company and the insolvency practitioner are protected from liability, may help to make the CVA a more viable option. In this recession, the more options we have to save companies and jobs, the better.
