Businesses resort to company voluntary agreements to stave off insolvency

Number of CVAs, which allow businesses to renegotiate their debts, rose by 32% to 924 last year, says accountancy firm

Businesses are increasingly using a little known procedure to stave off the threat of insolvency. The number of company voluntary agreements, which allow businesses to renegotiate their debts, increased by 32% in the last year to 924 from 699 in the previous year, according to accountancy firm Wilkins Kennedy.

To enter a CVA a company’s arrangement for repaying creditors must be approved by three-quarters of them and supervised by an insolvency practitioner. CVAs allow companies to continue trading and prevent creditors from taking action to recover debts until the agreement ends – either through completion or failure.

One of the reasons for the large rise is the collapse of Southern Cross Healthcare. To avoid bankruptcy the care home provider entered into hundreds of CVAs with creditors and different parts of the group.

Other major companies that have used CVAs include Fitness First, JJB Sports, Blacks Leisure and Focus DIY. Last week, the budget hotel chain Travelodge agreed one as part of a £635m debt restructuring deal and eight other hotel chains have entered CVAs in the past six months.

Landlords have complained about the process which often leaves them out of pocket. After the Travelodge announcement, Liz Peace, the chief executive for the British Property Federation, said: “Once again landlords are being asked to play a significant part in rescuing a business, and a minority at that, who are being asked to take a ‘hit’ to keep a far bigger business afloat.”

Inflexible rents have been blamed for the increase in CVAs by retailers and hotel operators. Anthony Cork, a partner at Wilkins Kennedy, has said: “Planning restrictions in the UK mean that rents are far more expensive here than compared with continental Europe and the US. That huge property overhead plays real havoc whenever there is a recession.”

He added: “Landlords do talk about being more flexible over rents but there is little substantial progress on that point. You get the impression that landlords will only renegotiate when they think their tenant is at the brink of bankruptcy.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

Enjoyed this post? Share it!