CVA reform is needed states insolvency body R3
Urgent reform is needed to ensure the effectiveness of company voluntary arrangements, insolvency and restructuring trade body R3 has claimed.
The calls for a review of the CVA process – backed by accountancy body ICAEW – follow extensive research by the University of Wolverhampton and Aston University.
Numerous recommendations are included in the research, which suggests that companies should be given more time to plan, that CVA lengths should be capped and that directors should have clearer roles.
The study also calls for standard terms to be introduced to the process, and for greater engagement from public sector creditors.
Several retailers have already sought to use a CVA to save their business in 2018, including Carpetright and Mothercare.
A CVA allows an insolvent company agree to repay creditors a portion of its debts over a defined time period, with the process overseen by an insolvency practitioner.
The process should allow a business to cut costs and restructure in a quick and efficient manner, therefore limiting any potential negative impacts on trading.
CVAs accounted for 1.8% of insolvency cases in 2017, while the research focused on reviewing CVAs agreed in 2013.
Of those, 18.5% were fully implemented, 16.5% remain ongoing and 65% were terminated before all objectives were achieved.
It’s important to note that an early termination does not necessarily mean that the process failed – it may be a case that more money was returned to creditors or that terminating was deemed more suitable than alternative options such as administration or liquidation.
Adrian Hyde, a spokesperson for R3 and former president, explained that changes could mean that CVAs are used more than less suitable alternatives.
He added that it may also allow for more businesses to be rescued and for more money to be returned to creditors, while also strengthening the overall insolvency framework.
Mr Hyde called for government plans for a moratorium to be revived, given that discussions have stalled over several years.
By Phil Smith