The number of businesses entering Company Voluntary Arrangements (CVAs) could rise markedly this year, according to a Kent corporate recovery specialist.

A CVA is a legally binding deal between a company in financial difficulty and its creditors that allows the former to repay all, or part, of its historic debts, usually out of future profits over an agreed period of time. Well-known high street names including JJB Sports and Blacks Leisure have been brought back from the brink in recent months through CVA rescue plans.

Vince Green, partner at corporate recovery firm HCW Recovery Solutions LLP, believes the use of such deals is likely to rise as businesses continue to struggle with debts and cash flow in 2010.

Mr Green said: “By entering a CVA a company can cut costs and improve cash flow quickly, while rental agreements and employment contracts can be terminated with the costs included in the CVA deal.

“Creditors also tend to look more favourably at a CVA than liquidation because they could be left with nothing if the company is allowed to fail. As such, they are often prepared to write off a proportion of the debt owed to them.

“A CVA is a good option for viable but struggling companies, however it cannot save a business with terminal problems. To be considered for a CVA, the business must at the very least have enough working capital to trade and pay day-to-day expenses and should also be able to point to a healthy order book. A business in trouble should contact an insolvency practitioner as soon as possible.”

CVAs give company directors flexibility as they can co-produce the arrangement. If 75 per cent of the creditors agree to the proposal at a formal meeting, it becomes binding on all unsecured creditors who had notice of the meeting and were entitled to vote.

The company can continue to trade throughout the duration of the CVA and once the terms of the agreement have been satisfied, the company’s liability to those creditors who had notice of the meeting is cleared.

Vince Green said: “CVAs are nothing new, having been around since 1986, but they have been underutilised. Recent successes such as with JJB Sports have shown how effective they can be but the reality is many businesses end up going to the wall before the directors seek help.

“In a stressful situation, a CVA can provide the breathing space necessary to reorganise and restructure the business without the threat of creditor action. Seeking help early is key as an insolvency practitioner can negotiate with creditors, explain the realities of the situation and ensure that the arrangement is the best way forward for all concerned.”

HCW Recovery Solutions LLP covers Kent, Sussex and Surrey and its range of services includes advice on administrations, company voluntary arrangements, liquidation, bankruptcy, and individual voluntary arrangements.

Vince Green can be contacted at 01892 700200.

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