Insolvency experts call for a major shake-up of the CVA system

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Following research undertaken by the University of Wolverhampton, the Midlands branch of insolvency and restructuring trade body, R3, is calling for a shake-up of the Company Voluntary Arrangement (CVA) system.

A CVA allows a company, which is either insolvent or undergoing debt problems, to come to a voluntary agreement with business creditors for repayment over a fixed period, during which the company can continue to trade. It has been used by high street stores such as Mothercare, New Look and, most recently, House of Fraser.

The study, produced by the University of Wolverhampton in conjunction with Aston University and supported by the Institute of Chartered Accountants in England and Wales (ICAEW), makes a series of recommendations, which include:

  • Capping the length of CVAs
  • Allowing more time for a company to plan a CVA
  • Defining a clearer role for directors and CVA supervisors.

The Midlands branch of R3 is seeking changes to the system in order for it to be used more often than alternative, less suitable arrangements, as well as increase the amount of money paid back to creditors, rescue more businesses and increase confidence in the process.

Following on from the University of Wolverhampton’s recommendations, R3 has released its own report, with its recommendations including:

  • CVAs are capped at three years
  • Introduction of a pre-insolvency moratorium
  • The requirement of public sector creditors to explain why they won’t support a CVA
  • Introduction of standard CVA terms and conditions.

Commenting on the value of Company Voluntary Arrangements, the chairman of R3 Midlands said: “When combined with new funding, CVAs can turn around a company and maximise repayments to creditors. Even when they don’t meet all their objectives, they can still see more money returned to creditors than an alternative procedure.”

Seeking insolvency advice at the earliest opportunity is the key to protecting your business and assets. To find out more, contact Gibson Hewitt today.