Insight & Analysis

Jump in retailers considering CVAs

Published: Oct 2020

Pandemic-induced hardship on the high street has caused a jump in companies taking out CVAs. They offer creditors the chance to receive more than they would in a liquidation process and allow viable companies to keep trading but are a source of growing anger amongst landlords.

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A long and ever-growing list of UK high street names are taking out or considering Company Voluntary Arrangements (CVAs) to help navigate the dramatic drop in cash income, turnover and profits due to the pandemic. New Look, menswear supplier Moss Bros, Pizza Express and Jigsaw are just some of the names drawing up agreements with creditors to renegotiate debts.

Chance to survive

The process involves companies proposing restructuring debt with creditors with either payment in full or payment in part. A CVA typically lasts up to five years and gives a company breathing space. This could include time to sell a property or refinance to pay off debts, says Cory Bebb, partner in the corporate recovery and insolvency team at JMW Solicitors, who believes CVA uptake will spike even further in the months ahead. “As long as 75% in value of your creditors are prepared to accept the terms of the proposal for trading into the future, the minority will be forced to accept the terms of the arrangement.”

It offers a way for viable companies to manage debts accrued through the pandemic when they re-open and trading increases, he says. “CVAs allow a business to catch up and survive into the future. The pandemic has caused a forced suspension of the economy with many viable businesses forced to suspend trading.”


For some creditors, a CVA can offer the best outcome because it means they stand a chance of getting some of their money back. “As long as the business is viable it is better than liquidation for stakeholders and creditors as creditors get some prospect of returns compared to the likelihood of getting very little in a liquidation scenario. One would hope that creditors of a viable business will be sympathetic to a CVA proposed by an otherwise viable business hit by the pandemic.”

However not all creditors are sympathetic. CVAs are a source of growing anger among landlords. Because of the way leases are treated in the procedure, it is difficult for them to block rent cuts and other terms in the agreements through a creditor vote.

CVAs are supported by detailed cash flows and profit and loss analysis but treasury should gauge the key strength of the business before embarking on the procedure, he warns. “The risk from a company perspective is that they may be delaying the inevitable or worsening the position. If it is not a viable business the company will just be buying itself a few more months or years of trading and could fail anyway. In this scenario it would end up with larger debts compared to its assets, its position could deteriorate, and it will end up going into liquidation anyway.”

Due diligence and honest appraisal is all the more important given the fact it is easier to keep unviable businesses afloat in the current climate. “We are not seeing a high number of formal insolvencies at the moment,” reflects Bebb. Typical triggers for insolvency processes like banks pulling in loans, pressure from HMRC and landlords, have been softened by the pandemic and government restrictions on enforcement. “It’s actually quite difficult for creditors to wind up companies that owe them money unless the creditor can demonstrate the insolvency is due to non- COVID reasons,” he concludes. “The actual level of insolvencies does not reflect the volume of businesses struggling.”

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