CVA reforms needed, says insolvency and restructuring profession

Reforms should be made to improve the effectiveness of Company Voluntary Arrangements, a common High Street insolvency procedure, according to research undertaken by the University of Wolverhampton.

Insolvency and restructuring trade body R3 commissioned the University, along with Aston University, to examine the success and failures of CVAs, with the support of the Institute of Chartered Accountants in England and Wales.

They published an in-depth report ‘Company Voluntary Arrangements: Evaluating Success and Failure’ at the end of May.

It recommends a cap on CVA lengths, more time for companies to plan a CVA, clearer roles for directors and CVA supervisors, more engagement from public sector creditors, and the introduction of standard terms.

A Company Voluntary Arrangement (CVA) is a statutory insolvency procedure which sees an insolvent company and its creditors agree the repayment of a portion of the company’s debts over a set period of time. The existing management stays in control of the company, while an insolvency practitioner reviews the CVA proposals and checks the terms of the CVA are met once approved.

Although CVAs made up just 1.8 per cent of insolvencies in 2017, they often involve well-known brands. High Street chains Select, Carpetright, New Look, Prezzo, and Byron Hamburgers are among those reported to have sought or agreed a CVA so far this year.

CVAs have been said by some to have a high failure rate and questions have been asked about their benefits for creditors.

The research reviewed the progress of CVAs agreed in 2013, and found that 18.5 per cent of those CVAs had been fully implemented, 16.5 per cent are still ongoing, and 65 per cent had been terminated without achieving all of their objectives.

However, the research also reveals that the early termination of a CVA does not automatically mean failure: terminated CVAs may return more money to creditors – the ultimate goal of any insolvency procedure – or otherwise be more beneficial for creditors than an administration or liquidation.