What is a CVA? 



A procedure enabling a company to come to an arrangement with its creditors over the payment of its debts. It can be used to settle debts over a period of time with creditor approval by paying only a proportion of the amount that it owes, or by paying them in full.

What is the benefit? 

There has been a lot written about CVAs recently, mainly in respect of high street retailers, and not all of it has been good, with certain creditors saying the process is unfair. It is important to remember that a CVA is a rescue tool, and is designed to allow a business to survive, which in turn should enable as many employees as possible to keep their jobs, and creditors to get paid more than they would if the business had ceased trading. That does not mean that everyone will necessarily get paid in full or all staff will have their employment safeguarded, but it needs to be looked at as a comparison to other options. It is making the best of a bad situation. It is my firm belief that CVAs have an important role in the corporate recovery toolbox.

Do they work for SME’s?

The recent press has also led to many assuming that the process is only available or suitable for larger multi-million-pound turnover businesses. This is absolutely not the case. Before any of us had even heard of COVID-19, and before measures were introduced in respect of insolvency processes to deal with the financial impact of the virus, I was using CVAs for SMEs. It is simply about being able to offer a form of business survival which provides for a better return to creditors than any alternative but does require the directors to have the appetite for continuing the business.

What about the Costs? 

There has been one other factor which sometimes has acted as a barrier to a CVA, and that is the cost of the process. Whilst I believe that for the extensive work required by the Insolvency Practitioner and their staff, fees really are commensurate, I am more than aware of the other side of the picture which is that we are working with a company with limited financial resources that needs every penny to continue trading. It is a difficult balance to strike. One thing to note is that after the initial fee to assist with proposals being written and presented to creditors, on-going costs are paid from future trading and included within the manageable cashflow forecasts.

What is the COVID-19 CVA Proposal? 

In September 2020, the insolvency industry was provided with the Standard Form Covid-19 CVA Proposal due to the expectation that SME companies are likely to be most affected by the pandemic. This is designed to be used as a standard by Insolvency Practitioners to assist their clients, specifically SME companies whose businesses have been affected by Covid-19. They are intended to save time and costs, and therefore make CVA’s more accessible to the SME market.

This does not take away or diminish the role of the Insolvency Practitioner to consider whether a CVA is an appropriate way to deal with the company’s financial distress but will reduce some of the report writing and administration.

How can Shaw Gibbs help?

Please do not hesitate to get in touch if you would like to talk through your situation. We focus on what you, as directors, want to achieve, help you to understand options, and provide information and guidance for dealing with difficult decisions on implementing cost savings. We can work with your existing accountant to put together cashflows to consider the various options discussed and deal with negotiations with creditors.

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