Helping directors for over 23 years.

Talk to us today in confidence:

What is a CVA (Company Voluntary Arrangement)?

superdry logo

Superdry Maybe Looking At A CVA

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. 

Read
Superdry Maybe Looking At A CVA
law books

CVA 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.

Read
CVA Case Law Created By A KSA Client – Thomas Vs Ken Thomas Ltd
Balloon

Why 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 79 PAGE GUIDE ON CVAS

Read
Why We Are Experts At CVAs! Read Our Story Regarding This Rescue Mechanism

Complete Experts Guide to the Company Voluntary Arrangement (CVA)

Indispensable if you need to rescue your company or advise your clients.There is only one complete, expert's guide to company voluntary arrangements. Published by Keith Steven, the UK's leading CVA expert.  DOWNLOAD OUR COMPLETE GUIDE TO CVA HERE Download it here or please call us (0800 970 0539) and we will send a copy to you, for free, in return.We've packed decades of turnaround experience into this guide. It'll tell you all you need to know about CVAs to rescue your company or your client's company.If you are a professional advisor, please let us know when you are requesting your copy. Then we'll be happy for your firm to send the PDF to as many clients as you wish. Your clients could be rescued by the CVA tool and we can assist you to retain clients.Just want to talk about your company and what a CVA can do to help? Please call 0800 9700539 for expert advice from our trained CVA specialists.

Read
Complete Experts Guide to the Company Voluntary Arrangement (CVA)

Why 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.

Read
Why Do CVAs Get A Bad Press?

Administration or Company Voluntary Arrangement CVA

The process of administration is very different from a CVA. In an Administration, Insolvency Practitioners take control of the company where it can be protected from all legal actions by any creditor. In a CVA the directors remain in control and a legally binding agreement is struck with the unsecured creditors to allow it to continue to trade. A CVA is generally a much less expensive process.

Read
Administration or Company Voluntary Arrangement CVA

Company Voluntary Arrangement For Law Firms

If your law practice has cashflow problems and pressure is growing, it’s time to get support and advice on your options. Its free to get initial advice from experts in turnaround and insolvency such as KSA Group who own this website. We have been rescuing, restructuring and closing law firms since 2003. Talking to experts (free) helps you understand this option and you will find it takes a lot of weight off your mind. So how would a CVA help your law practice? A CVA is a legally binding agreement with your LLP’s or company's creditors which allows a proportion of its HMRC and unsecured debts to be paid back over time. A well-structured proposal will ensure that HMRC, banks and other creditors support a restructure of the debts, the costs and the practice. By involving the regulators early, we can ensure they have input and oversight of client file issues and client account issues.Once the proposal has been approved then all unsecured creditors, are bound by the arrangement. The company or LLP can carry on trading as usual, and the directors remain in control. The CVA is monitored by a supervisor, who must be a licensed insolvency practitioner. The arrangement usually lasts for 3-5 years.A CVA is the best UK rescue tool for a company/LLP that could be viable going forward but is burdened by historic debt. The directors or designated members, who remain in control, are able to trade out of their firm’s current financial problems, provided that they have addressed the problems that caused the debts in the first place.This page will help you to discover what a company voluntary arrangement does, understand how it works and how it can help you stop creditor pressure and turnaround your company.If your law firm cashflow is under severe pressure call now. We will help you with the SRA and rescue your business.Call our support centre on 0800 970 0539 for a no obligation confidential chat. Read on to see the benefits of a Company Voluntary Arrangement, and how it can help you. The Advantages of a CVA For Your Law FirmCompany voluntary arrangements can improve cash flow quickly. SRA will support well structured professional CVA proposals and allow you to continue to practice. Stop pressure from HMRC tax, VAT and PAYE while the company voluntary arrangement is being prepared. We deal with HMRC on your behalf. A CVA can stop the threat of a winding up petition from HMRC Costs of overheads, people and buildings can be rapidly cut in a CVA as expensive managers can be made redundant. Company voluntary arrangements can terminate employment, payment/compliance obligations under leases, onerous supply contracts and all with NIL CASH COST All money owed to creditors is bundled up in one monthly payment to the supervisor Remove employees with no redundancy payments of lieu of notice costs (paid by the Government). Board and shareholders or designated member remain in control of the firm. A CVA has much lower costs than administration or a Scheme of Arrangement It is not publicly announced like administration is. Informed client consent is not necessary. You do not have to say your law firm is in a Company Voluntary Arrangement to your customersDisadvantages of a CVA for a law firmThe firm will have no credit rating after the CVA unless a group structure is out in place. The firm may have to find new bank facilities. SRA will want regular reporting of the progress to entering CVA and beyond. PII may be more expensive.CVA is a much more palatable solution than SRA intervention. Administration or pre pack administration, BUT it is tough process to go through. YOU need to be prepared to change the business practices to focus on profitability to ensure the CVA will perform over time. Creative corporate structure planning will be part of the advice we will give your firm. We practice as a partnership? Please note that if your firm is an ordinary partnership most of the above applies, but it is likely a partnership voluntary arrangement would be the process we would advise you upon.However, in advance of any meeting and issuance of engagement  letters our regulators and the Insolvency Service (part of HM Department of Business Energy and Industrial Strategy) require all insolvency practitioners to obtain know your client (KYC) and anti-money laundering (AML) identification documents for all directors and shareholders holding >25% of the shares to allow us to proceed to advise the company. We will require up to date ID information including a photographic ID, such as a passport or driving licence PLUS a home utility bill or bank statement for each person.

Read
Company Voluntary Arrangement For Law Firms