How the reputation of the CVA is receiving a makeover

How the reputation of the CVA is receiving a makeover

Rose Lagram-Taylor, barrister at South Square, says that if the recommendations in a report by R3, trade association for the UK’s insolvency, restructuring, advisory, and turnaround professionals, are adopted, the company voluntary arrangements (CVA) insolvency procedure could become more attractive.

What are the current issues with CVAs that have been identified by the R3 report?

CVAs have dominated the news recently, with well-known high street brands using the procedure to restructure their debt. However, there has been growing concern that the procedure is being abused, with companies avoiding administration to the detriment of their creditors. Further, there has been a relatively high rate of failure, with 65% of the 552 CVAs commenced in 2013 being terminated without achieving their intended aims (although the report highlights that accessing the success or failure of CVAs is not straightforward).

The purpose of R3’s report was therefore to consider how effective or otherwise CVAs are in practice, and to investigate the outcomes where CVAs fail. In doing so, five main issues were identified:

  • there are situations where CVAs have been implemented but terminated quickly
  • some CVAs return very little to creditors over their lifetime
  • the true length of CVAs is often much shorter than its expected duration due to missed contribution payments
  • there is often a significant gap between the expected level of dividends and the actual dividends
  • there is not always a contingency plan for the costs of a subsequent winding up in the event the CVA terminates

What recommendations does the report make?

The report made eight main recommendations:

  • CVAs should last no longer than three years without good reason
  • directors’ duties should be articulated more clearly and fully to include a requirement to address financial distress earlier
  • the roles and duties of nominees and supervisors should be articulated more clearly and fully in a revised statement of insolvency practice
  • public sector creditors should have to explain their decision fully if they refuse to support a CVA prop

Subscription Form

Related Articles:
Latest Articles:

Already a subscriber? Login
RELX (UK) Limited, trading as LexisNexis, and our LexisNexis Legal & Professional group companies will contact you to confirm your email address. You can manage your communication preferences via our Preference Centre. You can learn more about how we handle your personal data and your rights by reviewing our  Privacy Policy.

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login

About the author:

Anna joined the Restructuring and Insolvency team at Lexis®PSL in August 2013 from Berwin Leighton Paisner where she was a senior associate in the Restructuring Team.

Anna has worked on a number of large scale restructurings primarily in the UK market acting on behalf of lending institutions.

Recent transactions include the restructuring of a UK hotel chain and the administration sale of part of the Connaught group. Anna has also spent time on secondment at The Royal Bank of Scotland and trained at Clifford Chance qualifying in 2007.