Is a CVA the best way out of lockdown for a business?
Close your eyes and listen.
Remember the sounds of a happy, busy place. The sounds of a place full to the rafters with customers all eager to be served; of busy but efficient staff doing their best to serve or help them if there’s an issue.
The sound of tills being opened and closed or cards being tapped and PINs inputted.
The sounds of normal, everyday life in a successful business .
Hold onto them because the chances are that we won’t be hearing them for a long time or they’ll be mixed with muffled requests through masks or over the rustle of essential PPE.
We won’t really know how the Covid-19 pandemic and lockdown have changed society and business for several weeks and months later but if you own or run a company then you’ll already have a pretty good indication.
It will be a lucky business that doesn’t have to change in order to accommodate social distancing and other appropriate measures.
At a time when all revenues are being squeezed, if they’re still coming in at all, the financial demands will continue if not increase.
Hand sanitizers, PPE, new or upgraded IT equipment to allow for virtual meetings and increased home working. The surety and comfort of the various coronavirus business support schemes now also have a firm timetable for tapering off and ending meaning some hard choices will be visited on directors and owners sooner rather than later.
What options does a business owner have?
Stressful situations require creative thinking and looking again at previously discarded or otherwise unworkable options. It’s surprising how often the unfavoured solution becomes the correct one.
So what about placing your business into administration via a Company Voluntary Arrangement (CVA)?
Three months ago this would have sounded unthinkable but then so would closing much of the country’s businesses and making their workers stay at home.
A CVA carries many advantages:
- Legal and recovery action by creditors including winding-up petitions and statutory demands are halted
- Debt charges, interest and financial penalties are immediately frozen
- A proportion of debts is written off and a lower proportion of any remaining debt can be repaid in regular monthly installments
- Directors can retain control off their business or reassume control of a new company with the same assets and location
- Brings time to think carefully and seriously about the future of the business and explore various options to positively change it for the better
Additionally there are several imminent changes to UK insolvency laws that companies could benefit from including:
- A standard 20 business day moratorium, able to be extended to 40 business days, to allow otherwise viable but financially distressed companies to engage with their creditors and discuss rescue and restructure options without the threat of any enforcement action being taken.
- Directors remain in control of a company once a moratorium has been triggered although an Insolvency Practitioner is attached to the company as a “monitor” – to have a supervisory role on how the business can best repair and renew itself during this period.
- Unlike a standard CVA, companies can enter it without a statutory creditors vote as they are automatically bound for it and are automatically bound to any new restructuring plan.
- Wrongful trading rules are suspended so directors of companies in immediate financial distress can continue to trade while they seek a solution. They now have more freedom to act and seek help and advice without worrying that they’re breaking the law.
- Continuity of essential supplies and services are guaranteed.
- A restructuring plan can be drawn up by an insolvency practitioner that can set out in detail the options that can be taken to turn a struggling company around.
While the changes are not law yet, they will be tabled in Parliament in the near future and are expected to pass without change or opposition.
A lot of conventional wisdom starts as a cutting-edge, out-of-the-box theory that nobody else saw coming or would consider – until someone successfully implements it and then everybody does it.
So a CVA has gone from a niche business restructuring tool to a possible magic bullet to help large or small businesses take a breath, get their houses in order then come back properly adapted to take advantage of the new economy they’ll be facing.
An experienced, expert advisor will get a better understanding of the unique circumstances surrounding your business and get a feeling for what short and medium term improvements and changes you could make now and in the near future.
Innovators have always used existing tools and techniques in new ways to achieve breakthroughs. This year, the strategic use of a CVA could be the next big one for UK businesses.
We’re pretty good at this, so put together CVA proposals that will help your business re-emerge from lockdown and go beyond expectations.