Retail sector turning to CVAs to address financial woes
The use of company voluntary arrangements has increased drastically in 2018.
Numerous high profile retailers have been linked with the insolvency measure, while figures from the Insolvency Service reveal an 18% rise in use during the first three months of this year.
In that period, 102 company voluntary arrangements took place, with the process used to schedule the repayment of debts and liabilities of an insolvent company.
The process sees directors remain in charge of the business, although an insolvency practitioner will work with them to ensure that the plan suits both the business and its creditors.
As long as a business is still viable and has a record of being profitable at some stage, a CVA can help to ease creditor pressure, restructure in an efficient manner and reduce costs.
A CVA proposal includes the exact terms of how a company will repay debts, and over what period of time, using future profits.
By allowing a company to freeze unsecured debts, it is possible to create a new repayment schedule alongside new terms as required.
A business must then win the support of creditors by way of a vote, and the insolvency practitioner will often detail how returns on current debts and future trading are possible.
Numerous factors are attributed to struggles in the retail sector, including the rise of online retailing and the potential negative impact associated with Britain leaving the EU.
Increasing business rates have also driven a rise in operational costs at a time when consumer spending has dropped, placing further pressure on the sector.
Should a creditor feel aggrieved by a CVA they can challenge in the High Court under the Insolvency Act on grounds of material irregularity or unfair prejudice, although this must be done within 28 days of the CVA being approved.
By Phil Smith