Covid-19 Specific Provisions for Company Voluntary Arrangements

Small firms offered more help to stave off closure

Back in March when lockdown struck, it was clear that many firms who had been viable going concerns would struggle to survive. At the time we suggested that the Company Voluntary Arrangement could be a possible solution for some, because they “could enable companies to survive, by effectively “mothballing” them until better times return.”  We were pleased, therefore, when R3, the insolvency industry’s professional body recently introduced a free standard form directed at small and medium sized enterprises (SMEs) experiencing financial difficulties due to the Covid-19 pandemic. The aim is to make it easier for such companies to carry out company voluntary arrangements and return to profitability without the need to implement another form of insolvency process, such as administration or liquidation.

In this article we summarise the key provisions of what have become known as Covid-19 Company Voluntary Arrangements, and how they differ from standard CVAs. We remain convinced that CVAs are a key tool in the insolvency practitioners’ armoury to help companies avoid liquidation, especially right now.

Key Covid-19 Company Voluntary Arrangement provisions to assist SMEs

The new “COVID-19” CVA is slightly different to ‘standard’ CVAs because it is:

In addition, they also feature:

It is important to note that there is no reduction on the debt and the Arrangement still requires the Company to pay its debts back in full (100p in the £1).

Our Thoughts on Covid Company Voluntary Arrangements

We believe these new CVAs should be welcomed as they will help to reduce the cost and time involved in putting a CVA in place for SMEs. CVAs should not be seen as being relevant only to large retail & hospitality groups.

Last year there were 17,225 corporate insolvencies in England & Wales of which only 351 were CVAs – only 2% of all corporate insolvencies. Given the current circumstances, we believe that the new Covid CVA will help bring the process into the spotlight and help more companies turnaround and survive.

The R3 CVA is a simple option for financially distressed SME companies although the “one size fits all” approach may prove difficult. However the document should be easy adjust to particular circumstances.

It remains the case, of course, that such companies will need to have the support of their secured creditors and have confidence in their ability to return to profitability as and when the Covid crisis subsides.

Time will tell how whether the R3 Covid CVA proves popular. This will depend to a large extent on business owners’ awareness of this option and fully understanding how they work.

ABc have been one of the leading promoters of CVAs for many years. We hope that the current crisis will make more companies investigate a CVA as a restructuring option and a route to recovery. Visit this page to see some of our testimonials for Company Voluntary Arrangements.

Talk to us about Company Voluntary Arrangements

If your company, or a client’s company, is feeling the financial strain as a result of Covid-19 disruption and you want to find out more about Company Voluntary Arrangements, especially the ‘Covid CVA’ please contact us. The first consultation is free.

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