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What is a CVA (Company Voluntary Arrangement)?

Company Voluntary Arrangements (CVAs) are not just for large national retailers!

in What is a CVA (Company Voluntary Arrangement)?

We have seen recently a spate of large businesses such as Jamie's Italian, Byron Burgers, Select Retail, Carpetright, Mothercare and now even House of Fraser and Arcadia using the company voluntary arrangement (CVA) process to restructure.Large retailers like this particular method as it allows them to quickly close down loss-making stores.  The CVA is an insolvency mechanism that aims to rescue companies and, where appropriate, is a more cost-effective method of restructuring than administration.  Obviously, it depends on the circumstances but a CVA can be used for a company with only £30k of unsecured creditors.We have used CVAs to rescue not just retailers butBuilding companies Recruitment agencies Software developers Travel companies Printers Just about any business!If your business is struggling and thinks that a CVA might be the answer then call us on 0800 9700539 for a no obligation chat.

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Company Voluntary Arrangements (CVAs) are not just for large national retailers!
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What is a Company Voluntary Arrangement with Hive Up?

in What is a CVA (Company Voluntary Arrangement)?

When meeting directors they usually like the option of a Company Voluntary Arrangement , but they do have the obvious worries about future trading.Common ideas include “we want a CVA to restructure the business, but we are worried that our intellectual property would be put at risk". Or "if we do a CVA, we may be unable to tender for new contracts”. Or “why would our client continue to work with a company in a CVA”?So, what are possible solutions to these problems? Here, at KSA Group, we are pragmatic experts who will always try to help you find solutions. By using a CVA we can restructure viable but distressed companies. Sometimes this requires solving complex problems that can mean a standalone CVA is not sufficient.  In appropriate circumstances we have used the following methods to address such complex scenarios. Hive Up What is a Hive Up? Hive essentially means “to move”. An asset, or the whole business can be ‘hived’ up to a currently existing or newly formed GROUP company, we call this “groupco”.This can be a really clean vehicle that is either newly incorporated or a company that already exists in the director’s or group portfolio. It will often have a clean balance sheet, no existing liabilities, but of course, a low credit rating, often 40-50 out of 100 or so.  But of course, this is better than having no rating, post CVA.Moving assets within a group is not usually a problem for taxation (though we do stress that we are not tax experts and you should take your own advice from tax experts).OR groupco can acquire the business of oldco through a business asset sale. The trading business can then make payments for the purchase of the assets to oldco, which in turn uses the receipts as the contributions into a company voluntary arrangement .Alternatively, a newly formed company can acquire the shares of the trading company (“oldco”) which is going into a CVA, for nil or low value as the equity of the existing oldco company is often worthless.Usually before deciding on hive up, hive out or hive down, we recommend getting an independent valuer to provide a business asset valuation.Each situation needs careful assessment to decide the best method – call us to arrange a meeting with one of our KSA directors or regional managers to find out more. Hive Down What is a Hive Down? The board of oldco decides to sell some or all of the assets to its newly incorporated subsidiary company, called “bottomco” and the consideration (price) for this transfer is the shares in bottomco, or a cash payment can be made. This is effectively a swap of value for shares.Perhaps bottomco could raise new funds to achieve this. The providers of such funds must consider taking appropriate security and or the bank debt in oldco can be novated down to bottomco.Topco is now an insolvent company, with modest or zero assets other than the shares held in bottomco which are in effect not worth anything much. It enters into the CVA - company voluntary arrangement - to repay its unsecured creditors say 30p in £1 over 5 years, or 75p in £1 in 3 months. Bottomco may then pay this to Topco in consideration for the release of the shares.After the CVA ends, Topco could be wound up or left as a holding company for example. The people involved may buy the shares from the liquidator after a valuation from an independent party.This process avoids what is known as "transaction at an undervalue" which is a possible breach of s238 Insolvency Act 1986.As ever this is only a general guide, we cannot cover every scenario, so if you have a question or problem talk to us soon.Keith Steven - Managing Director KSA Group LtdCall 07974 086779 or 0800 9700539 today

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What is a Company Voluntary Arrangement with Hive Up?

CVA Debate Review

in What is a CVA (Company Voluntary Arrangement)?

The CVA debate was very well attended with 50 guests who came to hear the speakers and ask the panel questions.Speakers and Members of the panel wereKeith Steven, Managing Director of KSA Group Gary Weber, National Turnaround Manager KSA Group Professor Joshua Bamfield, Director of Centre of Retail Research Eric Walls, Licensed Insolvency Practitioner Wayne Harrison, Licensed Insolvency Practitioner Professor Grant Jones, Lawyer and Licensed Insolvency Practitioner Tony Groom, Managing Director of K2 Partners and Certified Turnaround ProfessionalKeith Steven opened with a quick history of the CVA and a rundown of how the CVA works, why it is a powerful rescue mechanism and why it is being used in the retail sector.Eric Walls pointed out that a CVA is an agreement with creditors by majority and so it is always likely that some will lose out.  The landlord only CVA, popular in the retail sector, may be seen as an unfair process and Eric was sure that this will be tested in the courts at some point.   The CVA gains much of its power from case law so this will be a welcome clarification.Gary Weber spoke about the benefits of the process from the company’s point of view and how change and discipline was needed for them to succeed and there had to be a core of a good business in there.Professor Joshua Bamfield of Retail Research Centre talked about the future of retail and the High Street and was able to draw on his research in the sector.  His predictions of closures that he made in 2014 turned out to be true.  Given the debate was on the CVA process he drew on figures that pointed out that CVAs were responsible for a minute portion of the 3000 stores closed this year so far.  Joshua called for more living space in city centres and high street locations and the need for a better experience in our towns. His research led to him predicting that 15,000 stores would close by 2022.Tony Groom of K2 Partners started the questions with a challenge to the panel to say that viability and reality are the main issues facing retailers as opposed to the concept of whether a particular restructuring tool is fair.   Wayne Harrison was of the view that all insolvency processes by their nature are unfair as it involves the breaking of a contract that a business may have signed up to but a CVA is perhaps fairer than a pre pack as it is at least transparent.  Grant Jones pointed out that it was very unfair that the online retailers were paying little tax, and this was putting pressure on the High Street.As expected many opinions from the floor were that landlords have had it good for a long time with long and inflexible leases and they need to adapt to the new economy.However, It was pointed out that it was probably unfair on the landlord whose rent for premises was compromised due to the poor management of the retailer.  Other retail chains are doing well like Zara/Primark/Wagamma.  That said a landlord of House of Fraser (HoF) said they were “shocked” at how their premises had been classified especially since they had seen many CVAs before and their own calculations had indicated that the rent was affordable.  What is more, there had been dialogue with HoF, which included the option of them taking back the premises, prior to the CVA but it had been forced on them and now the company was in administration they could not take back the premises yet.  Interestingly, HoF had sold and leased back some of the stores and set the rent themselves.  This intervention was welcome.  However, Eric Walls pointed out a CVA is an agreement and not all CVAs are the same.  If House of Fraser had not gone into administration, the CVA would have been tested in court.It was the overall feeling at the event that the High Street is heading for a lot of difficulty over the next few years and landlords, retailers and the Government are going to have to act together to preserve the High Street.

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CVA Debate Review

New Look to use CVA to close 60 stores

in News Retail What is a CVA (Company Voluntary Arrangement)?

Updated:New Look is now considering a CVA in order to close up to 60 stores, which represents 10% of its portfolio, after a very tough year in which UK sales were down 8% on like for like comparisons. 980 jobs are at risk. The South African owned business will need the permission of its bondholders. The plan also includes a rent reduction and new lease terms for 393 of its stores.New Look, which is owned by South Africa's Brait, has asked its creditors to approve the proposal by March 21 and all stores will remain open until then. Deloitte is acting as a nominee to the CVA.It has also been reported that the firm had lost its credit insurance from some of its suppliers that will mean that it will have to pay upfront for its supplies.  This has echoes of many other firms that have gone bust where the failure has been precipitated by the withdrawal of credit insurance.New Look ‎is the latest in a series of High Street names to look at trying to reduce the size of their store portfolios amid rising pressures from online and discount rivals, increased living wage and a deteriorating outlook for consumer confidence.Expensive High Street stores can be cut back provided that the lease allows for early termination.  If not the only way out is to surrender the lease that can be very expensive or use a company voluntary arrangement (CVA).A CVA allows the retailer to determine its lease obligations which can greatly help the company's cash flow.Daniel Butters, a partner at Deloitte, said that the CVA “will provide a stable platform upon which management’s turnaround plan can be delivered”.For more information on why a CVA is a perfect mechanism for helping retailers, read our retailer rescue page Why not read our case study where we rescued a multi-store retailer

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New Look to use CVA to close 60 stores

Byron Burgers to Seek CVA As Chain Struggles

in Hospitality News Retail What is a CVA (Company Voluntary Arrangement)?

The Byron Burger chain of upmarket burger restaurants has announced that it will be looking for the support of its creditors by way of a company voluntary arrangement (CVA).  Byron Burgers employs 1800 staff in 70 outlets.  The company is asking for a 55% rent reduction on 20 of its restaurants and to open a dialogue with the landlords regarding continuing trading.This is the latest in a line of businesses such as Toys R US that have been struggling recently and have looked at using the CVA mechanism.    The CVA will allow the company to vacate some of its properties and close its branches which, according to the company, have not performed to expectations.In order for the rent reductions to be binding on the other landlords, they will need the support of 75% by value.  These landlord CVAs are becoming more popular as retailers struggle with high premises costs.Rumours about the business' financial situation have been circulating since September last year when we reported that Byron confirmed it would be closing four of its outlets.Simon Cope, Byron chief executive, said: "Byron's core restaurant business and brand remain strong but the market that we operate in has changed profoundly."In order to continue serving our loyal customer base, we need to make some critical and difficult changes to the size and shape of our estate."CVAs are not popular with landlords as some see it as a way of businesses just dumping unprofitable stores.  However, in order to do a CVA, the company has to be insolvent on one of the 3 tests.  In this case, the business can argue that it is balance sheet insolvent as the ongoing costs and liabilities of the unprofitable stores will make the whole business insolvent.If you are a retailer or hospitality business then a CVA can be a very powerful mechanism to save your business.  See our page on retailer rescue or give us a call on 01289 309431

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Byron Burgers to Seek CVA As Chain Struggles

CVA Seminar in Scotland

in What is a CVA (Company Voluntary Arrangement)?

Is the Company Voluntary Arrangement or CVA underused in Scotland? Seminar well attended on the 12th OctoberA special thanks to all those who came along to hear Keith Steven of KSA Group talk about CVAs and their application in Scotland. Comments were that it was astonishing that only 6 or 7 CVAs are done each year in comparison to 600+ in England.The total number of CVAs filed in the UK is around 600 - 700 every year. In Scotland it is around 6 pa. We normally do 4-5 of them! CVAs allow a company to continue to trade by cutting costs quickly, can save jobs and in most cases gives a better return to creditor than an aggressive liquidation or pre-pack.KSA Group propose the highest number of CVAs in the UK and we have a success rate of over 90% creditor approval. As such, we would like to involve Scottish professionals in promoting this excellent rescue technique.The advantage to corporate advisors, accountants or lawyers of the CVA mechanism is that of business continuation. Your client can still remain your client once they are in a CVA and not be taken over by an insolvency practitioner which would be the case in administration. Also as a condition of all of our CVAs, monthly or quarterly management accounts are required to be produced to the CVA Supervisor, will provide additional work for your firm. We will also need help in putting together the forecasts in a CVA which is work that KSA Group will pay you for.If you were unable to come along and would like to attend the next one then please call Robert Moore on 07584 583884 or email robertm@ksagroup.co.uk. All attendees will receive a full course manual and our unique USB online insolvency toolkit free to take away which in itself is worth £99.Contents of the Insolvency Toolkit available on USB

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CVA Seminar in Scotland

Company Voluntary Arrangement for company or LLP Lawyers – Plan B

in Law What is a CVA (Company Voluntary Arrangement)?

We are a firm of very worried solicitors. Our legal practice is a company or LLP. We are under growing pressure from all sides. How can you help us solve these problems, restructure and survive? There are three options to deal with severe cashflow problems, this page looks at Plan B company voluntary arrangements (CVA)A CVA could be the answer to your company's problems and could even help protect you personally from your creditors. But it is a risky approach and possibly very damaging to your company credit rating. A hive down may resolve this credit rating issue, ask us for details.A CVA is a powerful insolvency tool that will ringfence your company creditors (that's all your unsecured but typically not the secured debts) and it can quickly take away the creditor pressure. It is acceptable to the SRA and in our experience the SRA will want to be informed but will not intervene.Many law firms have significant tax and trade debts. By ring fencing tax / trade debts and repaying them in full or in part over say 12-60 months this can have a major impact on cashflow allowing the company to survive immediate winding up threats, reduce fixed costs and people costs, it will usually be acceptable to the SRA and leaves the directors or designated members of a LLP in CONTROL of their business.If the directors believe in the fundamental viability of the practice and are determined to fight for the business then the CVA is a powerful rescue mechanism that is acceptable to the SRA. But most people are not aware that it can also be a powerful tool or framework for the restructuring of the business.Property leases and employment contracts can be terminated, costs cut and the business re-shaped to aid survival. This can be tough to drive through without the CVA approach. It can also be an emotional challenge for the directors to have to drive, so bringing in turnaround and insolvency experts is vital.KSA Group has turned around hundreds of companies including law firms. We can see the wood from the trees and guide your restructuring programme. CVA Guide It must be understood that this mechanism is not easy; the directors must work hard on a plan to change the business, cut costs and prove they can make the company viable. Above all the directors need to be determined and united to make this technique work.So what is a Company voluntary arrangement (CVA)? See our experts guide to company voluntary arrangements here for a full description, case studies, flowcharts and case law.The best way to think of a CVA is as a deal between the debtor (the company that owes the money) and the creditors; the people or businesses to whom the money is owed.Where the debtor cannot pay off its debts on time or the company is insolvent (for a definition of insolvency click the insolvent) or if your company is under huge pressure then the CVA may be an appropriate solution.Making a payment on a regular periodic basis the company can bring together all of its unsecured debt problems (except where the creditor has security such as a mortgage over property) and get on with their business and their lives. Who should use a CVA? It is imperative that the CVA is only used where the LLP or company is viable or where it has disposable assets that can be turned readily into money in the short to medium term. Using the CVA can allow time to sell such assets for better value than a liquidator or administrator can obtain.If the business isn't viable it should be wound up (see Plan C) as soon as possible and if personal guarantees are a problem, this may lead to IVA or personal bankruptcy for the directors.If the company is behind with PAYE, VAT and trade creditors then action may be taken by one or more of these creditors. If they petition to wind up the company, the board starts to lose options and lose control.If however the business has never made profit, sales are not rising to the level where overheads start and known prospects aren't great then a CVA is probably not suitable.Above all, time is against you so you must all ACT quickly. Writing the CVA proposal The law envisages that the debtor(s) will write the proposal and then ask an insolvency practitioner to act for the company. Of course the process is complicated and you have a business to run. Therefore it is probably best to use experienced, pragmatic and respected Turnaround practitioners such as KSA Group to write the proposal. Regardless of whom you use the following points should be remembered:1. Base it on sensible cashflows, sales and costs. Don't guess, don't expect large increases in fees.2. Expect that things in the first year will be a difficult and that fees may indeed fall.3. As a result expect to suffer in the first year and do not promise to make large payments in the first year.4. Don't promise too much but as above make sure it repayments are affordable. CVA Proposal contents The proposal should include a description of why the business has failed and why it is insolvent. It should also detail what the structure of the CVA deal is and how the creditors are going to be repaid. To help the creditors decide whether to accept the CVA it must contain what is called a statement of affairs. Or SOFA for short.A SOFA paints a picture of your financial position and demonstrates that the company is insolvent. It will also show what would happen if the company was wound up and went into liquidation and what the outcome would be if the CVA were approved and successful. Of course the risk of SRA intervention means that liquidation may generate NIL return for creditors. SO CVA is a better choice, whilst perhaps Hobsons choice.The document will describe how long the deal is for. Typically most CVAs last between three and five years. And the document will describe how much the company will pay from the business in the months and years ahead to its creditors.After the document has been completed and the nominee (Nominated Supervisor) has reported it can be filed at court. The purposes of this are to ensure that the document that is filed at court is the same document that is circulated to all creditors.BANKS?Occasionally the bank is unsecured in these situations. It may not have a valid security over debtors for example. If so then the bank would be compromised by the CVA. We are currently negotiating with several banks to reduce debt where the bank does have security, but the company is unable to service that debt.Most often though the bank is secured and can appoint its own administrator or receiver. Care must be taken to keep the bank appraised and detailed forecasts provided to show whether the company can operate within the set facilities.Solutions include loan payment holidays, occasionally debt write down, long term debt conversion from overdraft to long term loans. Re-banking with more appropriate facilities and debt write off.CVAs are complex schemes to put together and care must be taken to consider all stakeholders objectives, carefully set out a plan and ensure buy in from creditors.Costs:Our fees usually come from cashflow savings that we can create for your partnership as part of this process. We often take a fee over several weeks and add a success fee if agreed targets are achieved. All fees are quoted in writing.What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.What if neither Plan A or Plan B is suitable?Plan C pre pack administration, or winding up of the companyOf course acquisition by another firm is a possibility too. Will this acquiror pick up all of the liabilities of your firm? Perhaps pre-packaged administration could preserve the business and employment?Call KSA Group's DEDICATED LAWYERS LINE now on

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Company Voluntary Arrangement for company or LLP Lawyers – Plan B

CVA versus Pre packs – The Great Debate

in Pre Pack Administration Process and Procedures What is a CVA (Company Voluntary Arrangement)?

With H.M. Governments Insolvency Service planning yet another review of the current practices regarding pre-packaged administration sales (pre-packs), this thorny subject once again comes under the spotlight. The Insolvency Service estimates that 25 per cent of all administrations are pre-packs, of which around 85 per cent are sold-on to parties already linked to the company.

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CVA versus Pre packs – The Great Debate

Satisfied client exits CVA

in What is a CVA (Company Voluntary Arrangement)?

Below is a testimonial from one of our clients, having just finished a CVA with the help of KSA. One happy client! I wanted to drop you a quick note to let you know that today I have sent a final payment to Eric Walls and the creditors’ fund, which now completes the CVA process for the company.  The company is now in a very different place to when you, Hugh and then Eirlys helped us so much to get through the first few months before the CVA was approved. Having read through some of the testimonials on your website I can only endorse the comments about your team and the fantastic way they listen, help, sort out and restructure the business.   I am sure I am not alone in saying that most company owners and directors are pretty battle scarred before they get in touch with you but there is always a willingness to continue the fight for survival. We have, after all, created  a business with loyal  staff that have mortgages to pay. However, when we sit down and go through a five year plan there is a nagging doubt of whether I can pull the business through the process. What was particularly helpful to me in those early days was the complete lack of judgemental comment and instead, very helpful comments on how to turn around a business and get it back to prosperity. The majority of my company income comes from advertising in our trade journals and PR retainers, the first areas that get cut in tough times. So, even though Eirlys was able to successfully keep our creditors and trade suppliers on side, top line growth was always going to be a problem. I believe we came through the five years by making some major decisions that caused a number of problems in the first place. Our offices were far too big and costly, we had too many staff, and we had been overly loyal to some suppliers such as printers who had been charging too much for their services.   Throughout the five years we have not experienced any problems with suppliers, apart from our bankers (with whom we had taken out a business loan  that was backed by our houses). This bank has been hopeless and completely useless throughout and I can’t wait to get rid of them.   My thanks again to you and the KSA team, we would not be here today without your help, thank you so much.   Kind regards

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Satisfied client exits CVA

Another customer safe from administration and in a CVA

in What Does Going Into Administration Mean? What is a CVA (Company Voluntary Arrangement)?

A recent customer admitted other potential advisors were pushing for them to go into a pre pack administration, but with KSA's help, this business is in a CVA and will continue trading and returning money to creditors, including paying back a proportion of their £500k of tax liabilities to HMRC.We were sent the following email:All, I just wanted to thank you all for your assistance with the CVA preparation. With 100% of creditors voting in favour this is a testament to your experience and process in putting these together. The last few weeks has been a nerve wracking time and timing has been close to the wire, but the end result means that we are now well positioned to execute our plans going forward to the benefit of all. In deciding to go with KSA we had numerous other providers who were either cheaper or pushing a pre-pack route. You have delivered what you set out and certainly a much better outcome than administration. Marie, a special thanks for your efficient and calm handling of all the issues that have arisen, and Andrew – your “mother of all spreadsheets” will now double as our operating budget for next year. Finally, if you ever have any prospective clients who require a reference, I would be happy to talk with them. Regards

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Another customer safe from administration and in a CVA

CVA Case Study – Scottish Recruitment Company

in Construction What is a CVA (Company Voluntary Arrangement)?

One of the directors of a Scottish registered company, trading since 1994 and now trading from premises in Edinburgh, contacted and then appointed KSA in June 2009 to assist with the preparation of a Company Voluntary Arrangement (CVA) to the company’s creditors.The company provides temporary and permanent personnel placements across a number of sectors including industrial, construction & property, manufacturing, technology, scientific and information technology to name but a few.The company mainly operates in the central belt of Scotland but has also provided personnel around Europe, Iraq, and other areas of the world.Over time the majority of the company’s business related to the construction and property sectors, making up approximately 40/50% of the company’s turnover.The company had invested quite heavily at the end of 2007 and beginning of 2008, taking on larger offices and recruiting 17/19 new sales team members. Almost half of the new staff were recruited to focus on expanding markets like house building and consultancy recruitment.During 2008 the company started to feel the early effects of the current economic downturn but similar to other companies the company was unaware of the drastic effect it would have on new business, existing business and also debt recovery.At the end of 2008 the company took steps to reduce costs by making a number of staff redundant and vacating its premises in Glasgow so as to only trade from its premises in Edinburgh. Despite these changes the company was struggling to deal with historical debt of approximately £1.35m owed to unsecured creditors, including approximately £1.1m owed to HMRC.

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CVA Case Study – Scottish Recruitment Company

KSA Group saves 1760 jobs using CVAs

in What is a CVA (Company Voluntary Arrangement)?

We have done an analysis of all the companies that we have successfully negotiated CVAs for and which have been approved by creditors and filed at Companies House. Since January 2011 KSA Group have "saved" 1760 jobs in these firms.What do we mean by that?  Well, prior to the CVA being filed these businesses faced being wound up or being put into administration or liquidation as they suffered under the weight of their debts.  The CVA allowed the unsecured creditors to receive a dividend on their debts ranging from 30p to 100p in the £1 and the business to get on with making money and being a useful and productive member of the business community!So what did we actually do?  The main thrust is to persuade the creditors that the business is viable going forward.  A special thanks to the team in our Berwick Office who do all the creditor liaison in this respect.   Our corporate advisors talk to the client's bank, HMRC, trade suppliers, and customers amongst others.  We also advise the directors on how they can cut costs to become more efficient using the powerful company voluntary arrangement mechanism.Of course those jobs are just from CVAs. They do not include the work we do with pre pack administrations, trading administrations and informal time to pay deals with creditors.

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KSA Group saves 1760 jobs using CVAs