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.
CVAs are becoming ever more popular with big retailers with Arcadia being the most recent company to use one.
Categories: What is a CVA or Company voluntary arrangement?