What is a CVA? | Company Voluntary Arrangements Explained
A CVA or Company Voluntary Arrangement is a legally binding agreement with creditors allowing a proportion of debts to be paid back over time
ReadWhat is a CVA? | Company Voluntary Arrangements Explained
A CVA or Company Voluntary Arrangement is a legally binding agreement with creditors allowing a proportion of debts to be paid back over time
ReadTapi Carpets Rescues some stores from Carpetright
Update. 22nd July 2024Carpetright has been rescued in part by its rival Tapi Carpets. The company will keep 54 stores but 200 are still at risk. The deal will also result in 1,018 job losses across Carpetright’s Purfleet head office and its remaining 218 UK wide stores.PwC administrators who are handling this administration, said that some HQ employees will be retained for a short period to help in the winding down procedure.Retail Gazette share more. Flooring specialist, Carpetright, has confirmed it has filed a notice of intention to appoint administrators.This notice allows breathing space of ten days, whilst a rescue line is sought. If no rescue is found in the period, insolvency is likely.This comes as the flooring retailer faces trading difficulty with increased competition and a fall in demand.Expected outcomes, should a rescue deal be made, are a pre-pack deal or a company voluntary arrangement. These options would potentially leave customers, suppliers, subcontractors and landlords out of pocket, result in store closures and leave 1,852 jobs at risk.The firm are however working towards a reprieve - hoping to secure additional funding to see them out of the red.This is not the first time Carpetright has hit the news for trading difficulty. Recent events:Teneo were appointed in April to explore cost-saving measures for the loss-making chain In April there was a financial strain placed on Carpetright when a cyberattack left it unable to trade online and in-store for almost a week In June it was reported that the retailer were looking to axe more than 25% of its head office staff as it looked to streamline operationsCarpetright has 272 UK stores and employs over 3,000 staff.
ReadCineworld Looking At A CVA
According to information obtained by Sky News, the movie chain and its advisors at AlixPartners have started formally investigating a company voluntary arrangement (CVA). This is following earlier reports that the company was seeking a sale of the business.The Cineworld chain is a global business that went into Chapter 11 bankruptcy protection in the US back in 2022. It has now emerged from that and much of its debts have been swapped for equity. So it seems that many investors are still keen to be part of it.In the abscence of any sort of sale a CVA is the companies best chance of reducing its overheads as it enables it to exit non profit making cinemas. It can also help restructure its unsecured debts provided that the creditors agree to its proposal. 75% by value of those that vote will need to support any proposal.The company has more than 100 sites in the UK, including the Picturehouse chain, and employs thousands of peopleIn a statement issued to Sky News earlier in the month, it said: "Like many businesses, we are continually reviewing our UK operations."It is also worth pointing out that this years film releases have underperformed. Furiosa, Fall Guy, Civil War, Planet of the Apes have been well below expectations. This is probably a combination of high ticket prices, streaming competition and lower quality compared to previous years..
ReadIsland Poke rescued by Pre-Pack Sale
27 June 2024White Rabbit Fund has acquired full control of Grab and Go brand Island Poke, in the form of a pre-pack administration.White Rabbit has backed the brand since 2016.The pre-pack sale safeguards 104 hospitality jobs and supplier operations, according to reports.Read more via Restaurant Online.28 May 2024Grab-and-go brand, Island Poke is preparing for a company voluntary arrangement (CVA), in efforts to restructure its business.Two partners of Begbies Traynor were appointed to support the restructuring. They submitted a CVA application to the court on Wednesday.Island Poke, the heath food chain, is coming up to almost 10 years of business. Initially it opened as a street food stall but later in 2015 its first brick and mortar site was opened, this being in Soho. Now the group has 17 UK sites to its name, along with 10 French sites, run under a franchise.A spokesperson for the brand explained how the core of the business is profitable, but the debt left from COVID was a key reason for its struggles.‘’The CVA proposal will strengthen the company and allow us to focus on providing fresh, healthy poke to our customers.’’This is not the first food chain to look into the CVA route. It has been used by many, as a way to determine lease obligations, perhaps propose a deal to cut rents, but ultimately improve the company’s cash flow. It typically is used as a turnaround plan, to bring hope for struggling businesses of a rescue.Read more on CVAs including the process here. At Company Rescue we are experts in this mechanism.
ReadSuperdry Creditors Vote in Favour of Restructuring Plan
Update: 11 June 202499% of Superdry creditors have voted in favour of the proposed restructuring plans to rescue the fashion retailer.The proposed plan includes a delisting from the stock market, achieving rent reductions at 39 of its 94 UK stores and an equity raise underwritten by founder, Julian Dunkerton.This is a restructuring plan under part 26 of the Companies Act Update: 15 April 2024It hits the news today that landlords of Superdry are considering a restructuring deal that would result in steep rent cuts at a large proportion of its 94 British shops. The scale of the rent cuts would be dependent on the financial performance of each site.According to City sources, the fashion retailer is not planning on any permanent closures, but landlords would have the option to terminate any leases if they were not satisfied with the terms of the deal.Superdry has been facing red for some time. Most recently there were talks with founder, Julian Dunkerton regarding a takeover, but such talks were then aborted.Sky News share more. Update : 29 January 2024In line with other retailers Superdry has been finding trading difficult due to the cost of living crisis. It has also been cutting back its store count. The clothing brand has 104 stores in the UK and started closing some back in July 2023. The company also announced that it was looking at costs savings of some £40m. This is an increase from the £35m they announced recently. There are now rumours circulating that the company is looking at a Company Voluntary Arrangement (CVA) as a way of cutting costs.The CVA is a powerful rescue tool that is particularly favoured by retailers due to is ability to allow companies to vacate properties and determine their lease obligations. The cost of high rent shops on long leases can be a heavy burden on retailers.The following case law has been used for some years now to terminate leases with no cash cost to the company.Re: Doorbar v Alltime Securities Ltd (1995) BCC 1149 stated that landlords can be bound by voluntary arrangements for future obligations under a lease.Re: Cancol Ltd (1995) BCC 1133 that the word ‘creditor’ in r1.17(1) IR 86 was wide enough to include a landlord with a right to future rent i.e. the ability to include future rent extends to CVAs as well as Individual Voluntary Arrangements.Furthermore, where the unliquidated or unascertained claim in a CVA involves future rents accruing to a landlord, the case of Re Park Air Services [1996] BCC 556) gives the CVA meeting chairman some considerable guidance as to quantifying the claim at the meeting.Another reason that Superdry is finding itself in difficulty is that it rapidly expanded to try and become a global super brand. No doubt much of this expanision was fueled by cheap debt and as many companies are now finding out when interest rates rise and customers pull back the going gets very tough. As such the shares have lost almost 90% of their value in the last 12 monthsSky News has reported that PWC are the advisors that are looking at restructuring options.It is quite standard practice to put out stories about a possible CVA as this does prepare the ground for negotiations with landlords. They will be asking the landlords for substantial rent reductions in order for them to survive. If landlords refuse then they can usually get other suppliers and trade creditors to support a CVA proposal and out vote them.Landlords have tried to challenge CVAs in the courts on the grounds that they unfairly prejudice their position but have so far failed to succeed.
ReadAdvice If You Are A Creditor Of A Company Proposing A CVA
If you are a creditor or supplier of a company in a CVA or proposing one then read our guide.
ReadEverest To Go Into Administration
ReSolve administrators were appointed on Friday to oversee the operations of Everest 2020 Ltd. They will look for a buyer to save all or a portion of the company.More than ten years ago, after it needed a reorganisation, the specialised double glazing company was purchased by British venture capitalist Jon Moulton's investment firm Better Capital.Afterwards, the Covid-19 outbreak struck Everest especially hard; as a result, Better Capital put the company in a pre-pack administration in June 2020, sparing hundreds of jobs.Everest operated a manufacturing facility in Treherbert, Wales, in addition to its headquarters in Cuffley, Hertfordshire.
ReadCVA Case Law Created By A KSA Client – Thomas Vs Ken Thomas Ltd
Thomas Vs Ken Thomas Ltd and the Court of Appeal upheld our clients position. The case can be summarised as below: The Court of Appeal’s decision in Thomas v Ken Thomas Limited highlights a significant aspect of the landlord-tenant relationship concerning the appropriation of payments made by a tenant in arrears and where a CVA is proposed. Here’s a summary: Key Issue:The case dealt with whether a landlord can appropriate (allocate) a tenant’s payment towards rent for a period other than the one specified by the tenant. The court examined the implications of accepting payments from a tenant who has specified the payment to cover rent for a particular – in this case one month in advance - period. Facts:Ken Thomas Limited, was a medium sized loss making haulage contractor requiring a turnaround. It approached KSA to oversee a CVA led restructure. It leased over 1million square feet of logistics premises from Mr. Thomas but fell into rent arrears and became insolvent. It proposed to enter into a Company Voluntary Arrangement (CVA). During the CVA construction/ preparatory period, our KSA operations director, Iain Campbell agreed with the landlord that the tenant would pay future rent on the first day of each month for that month, whilst arrears were frozen. This was agreed in writing with the company and the landlord. The company offered to pay the monthly rent for December and subsequently for January, specifying the allocation of these payments. Mr. Thomas, however, unilaterally applied these payments to previous arrears and claimed the company was in breach of the lease and sought forfeiture action in the Norwich County Court, which was granted. Decision:The Appeal Court ruled in favour of Ken Thomas Limited, finding that Mr. Thomas had waived his right to forfeit the lease by accepting payments specified for December and January rent, thereby binding himself to the tenant’s appropriation of the rent funds. The court emphasised that a landlord must refuse or return the payment if they disagree with the appropriation specified by the tenant, to avoid waiving their right to forfeit the lease for non-payment.Legal Principle:The case underscores the principle of appropriation in the landlord-tenant context, stating that a tenant can decide how their payments are to be allocated if specified. Absent such specification, the landlord could choose the allocation. Implications:This judgment highlights the importance for landlords to understand the implications of accepting payments from tenants in arrears. It illustrates the need for landlords to be clear about their commercial objectives and the potential consequences of accepting payment against the backdrop of a breach of covenant. The case also led to the common practice of including ‘no waiver’ clauses in leases to protect landlords from inadvertently waiving their rights to remedies for breaches by accepting rent payments. Looking at this case some 15 years later we remember how difficult it was but the company had its CVA accepted by creditors with KSA leading the restructuring project. Our more recent cases are highlighting that many landlords premises are “overrented” post Covid and may need to either be exited using the CVA or have the rent varied by a well written CVA. We are currently working with haulage and logistics companies recruitment companies, software/tech companies, manufacturing companies and retailers to assist them to reduce fixed costs like rent. If you are a tenant of a commercial premises and your business needs to restructure, or is considering exiting the lease to support cashflow then you need expert advice. It could be a CVA is the appropriate tool to use. KSA Group helped create the above case law so you can be sure we know a thing or two about CVAs and properties.
ReadWhy We Are Experts At CVAs! Read Our Story Regarding This Rescue Mechanism
The KSA Group started taking formal insolvency appointments in 2009 with the merger of KSA Group and Marlor Walls in the summer of that year.Since then we have learned a massive amount about the technique, we’ve gained experience from dealing with over 320 CVA appointments between 2009 and September 2022 . That’s 320 crisis situations - devising appropriate rescue and turnaround strategies together with our clients’ boards of directors, their lenders investors and stakeholders like creditors, landlords and employees.Many in the insolvency markets have a negative approach to the CVA tool. Variously over the years we have been told that “CVA doesn’t work, they are never the best solution, they hardly ever succeed. Creditors get nothing. HMRC will not support a CVA” and we understand that approach. Often clients or prospective clients report to us that other insolvency firms rubbish the CVA tool. Perhaps that’s why CVAs are not that common. Only 175 have been approved nationally in the year to 30th December 2023.We beg to differ. A well structured, “fit, fair and feasible CVA” scheme can:Rescue viable businesses when a critical event has occurred. Help a determined management team rebuild a failing business. Save jobs of employees. It is likely that KSA saved over 11,000 jobs from 2009-2022. Save directors livelihoods and health. Return money to creditors: KSA has distributed £31m to creditors 2009-2022. This excludes secured debts and secured factoring facilities, much of which have been or will be repaid. Repaid £17.9m to HMRC between 2009 and 2023, remember this for the most part when HMRC was an unsecured creditor (2009-2020). That’s taxpayers money. Saved creditors money. Preserved 320 customers for thousands for suppliers, accountants and professional advisors.Nobody knows more than the KSA team, that CVA rescues are tough to construct, tough to implement, and tougher still for companies to successfully recover from. We have filed more successful CVAs than any other practitioner. We can send the research to you if you want. Please email robertm@ksagroup.co.uk for the FOI request reply from Companies House.The London Gazette (the official paper of record dating back to the 17th Century) has published an article about CVAs written by Keith.Diligent and organised directors can use this enormously powerful tool, case law and best CVA practice to drive a turnaround but only if guided by experienced turnaround and insolvency professionals. Be under no illusion this is tougher on the directors than anything they will do in their careers. Emotionally, intellectually and physically the CVA led turnaround requires directors to have resilience, physical and mental determination and a good guide.Of course, not all CVAs reach full term but the process secured jobs, paid back creditors a good chunk of what they were owed and with that helped reduce directors liability under their personal guarantees!Conversely, some clients paid off a 3-5 year CVA scheme debts in 6-18 months. Others went through mergers and acquisitions processes, which preserved jobs and businesses. Many plodded on to successfully pay back the CVA as planned. Still the key for us is we did our best to help our clients and creditors recover from a crisis.It has to be said that even with KSA’s “evangelical zeal for CVAs “ as an insolvency firm, the majority of our work by case numbers is normal voluntary liquidations and administrations. Too many SME directors leave the decision to take advice from the insolvency world far too late. Would we have rescued more of these liquidations had the directors only approached us sooner? Impossible to tell.Our final point would be to funders, lenders, investors, VCs and family office investors. In the main, secured creditors stand outside of a CVA process which can lead to dilution for preferential and unsecured creditors. What do you have to lose by encouraging your clients or customers to take advice on RESCUE options like CVA first?The CVA team at KSA group is made up of creative turnaround advisors, creditor liaison experts, tough debt negotiators, brilliant financial modellers and pragmatic insolvency practitioners. We will always look at rescue and closure options impartially and based upon our professional assessment of viability. Yes many directors come to us liking the CVA option, unfortunately many of these businesses or directors simply don’t have the necessary attributes for a rescue.Now, as a team we have, collectively over 500 company voluntary arrangement deals, built, filed and approved by creditors, we believe we know a fair deal about this rescue tool! Get in touch if your client, customer, investee or your company is interested in leading edge CVA advice. See our expert guide for directors below.DOWNLOAD OUR 69 PAGE GUIDE ON CVAS
ReadHow to terminate leases in a CVA
Using a company voluntary arrangement (CVA), companies can exit non performing properties and free them from any lease obligations, thus crystallising the liability. Rent payments are stopped and the landlord can be prevented from taking recovery action.
ReadA Company Voluntary Arrangement CVA or a Formal Time to Pay Agreement
The main advantage of a CVA over TTP is that you can write off a proportion of the debt whereas a TTP you have to pay all of the debt.
ReadWhy Do CVAs Get A Bad Press?
It is very simple, when a CVA succeeds very few people hear about it (it doesn't have to be publicized unlike administration or liquidation). The company carries on trading and the debts are paid off over time. If it fails and then the company is put into administration or even liquidated then everyone is up in arms saying that CVAs don't work. This is nonsense!They do work and will, in most cases, pay more back to the creditors than other insolvency procedures. Mind you, for a CVA to work then the business must be viable and have a future so that creditors can be paid off over time. In most cases a CVA fails for the following reasons;The company has agreed to pay more to creditors than it can afford. Creditors have been poorly managed by the advisors and so have not been as supportive of the process as they should. A consensus with creditors should be the aim of the turnaround or insolvency advisors. The company is over optimistic on projected sales. The CVA advisors and management have not gone far enough to cut costs quickly The management have grown tired of being in business and so fall on their sword! Their bank has not been fully involved and although they are not bound by the CVA their advice and input is essential. A CVA was not the best tool for their situation. Perhaps an administration or in some cases a company liquidation would have been more appropriate. Advisors have little experience of CVAs but push ahead nonetheless. See below.Example: A director came to us wanting to change supervisors of the CVA as it wasn't working. When we looked into it we discovered that the company had debts of £1.5m on a turnover of £1m. This immediately sounds unviable! especially as the CVA was to pay 100p in the £1 over 5 years. To make matters worse, one of the main creditors was Amazon, as they ran an ecommerce site directly linked to Amazon. So, given that Amazon controlled all the cash they didn't comply with the terms of the CVA and started to take back what was owed to them. So the IP who proposed the CVA had no idea what a "de facto" secured creditor was. The IP should have left Amazon out of the CVA and suggested to the other creditors that 100p in the £1 was not possible. We often get agreed CVAs with payments of 40p in the £1. Funnily enough the IP who proposed this CVA hasn't done very many!CVAs are becoming ever more popular with big retailers with Poundstretcher being the most recent large company to use one.
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