A skilled Insolvency Practitioner looks at each case in isolation, identifies the business’ strengths, its opportunities and the problems, and then assists the directors in identifying the right solution, using Insolvency Act processes only if necessary.
The CVA, or Company Voluntary Arrangement, has long been a useful tool in the armoury of an insolvency practitioner. It is particularly useful in circumstances where an underlying healthy business is facing a hurdle that it is struggling to get over. This hurdle could be a large bad debt, a change in legislation, the loss of the biggest customer or, an unexpected short term drop-off in turnover.
To state the obvious, the COVID-19 pandemic and its effects on the economy is now a hurdle for many businesses of all shapes and sizes. Some business are configured in such a way that they can be quickly scaled down, literally turning off the lights until a more favorable trading environment returns, while others have sufficient cash reserves which, combined with cost savings and the government’s financial support schemes, will see them through a difficult patch. However, as more and more businesses do scale down and hang on to their cash, other less agile businesses with large fixed costs which are dependent upon that cash will find themselves approaching a cliff edge.
The Restructuring and Insolvency Partners at Mercer & Hole believe that the versatile nature of the CVA legislation could prove to be the right solution for some businesses facing the reality of running out of cash, businesses which were anticipating a long bright future but for the sudden, drastic and hopefully short term contraction in the economy. It’s also worth noting that there’s a lot of goodwill out there. People are pulling together and making sacrifices for the greater good. It’s possible that a sensible and well put together set of proposals has a good chance of being approved by sympathetic Creditors who knew what the business looked like before the crisis and are happy to keep trading with it when it’s all over.