Insolvency body R3 has published a standard form extending the help bigger companies get when they go into administration but continue to trade.
What is a CVA?
A CVA is a form of insolvency used by businesses to cut debts, restructure their capital or dispose of assets such as property leases.
At least 75 per cent of unsecured creditors must agree to such a proposal for it to go ahead.
The R3 standard form details what businesses need to do to reach an agreement with their creditors, settle their debts and turnaround their business.
The form includes a breathing space period to allow a business time to restructure without fear of action from its creditors, to be followed by a payment period where a company’s debts are paid in line with the CVA agreement.
No recommendations have been made for the timescales of these periods, in order to allow the business and its creditors the freedom to negotiate them.
An additional introductory period of a maximum of three months is also included in the document for businesses who haven’t resumed trading as a result of the Covid pandemic, as well as the ability to temporarily halt payments if the business is in local lockdown.
In August there were 778 company insolvencies, 15 of which were CVAs. However, the numbers are expected to increase as the government’s emergency Covid-19 business support schemes are wound down or scaled back.
Stewart Perry said: “SMEs are the backbone of the UK economy, but these businesses have been hit hardest by Covid-19 and the subsequent lockdown. As a result, many of them will have been forced to consider an insolvency process or seek insolvency advice when they would most likely have never had to in normal circumstances.
“We recognise CVAs are a bespoke process, so this isn’t intended to be a template for each and every case, but we hope it will provide a useful foundation for anyone looking to enter one.
Professor Walton said: “Our CVA Form provides a clear outline of the CVA process. It details what businesses need to do to reach an agreement with their creditors, settle their debts, and turn their situation around.
“We hope it will enable more businesses to benefit from CVAs by making the process more understood and more accessible – and that by doing so, it will help more businesses stay open, preserve more jobs and keep more money flowing through the economy.”
How to wind up a small business – a step-by-step guide