The company voluntary arrangement (CVA) is a relatively obscure insolvency procedure whose use has traditionally been overshadowed by administration. A CVA is essentially a contract between a company and its unsecured creditors which sets out the terms on which the company can continue trading. Implementation of a CVA requires the approval of 75 per cent of creditors by value, who vote on the proposal.
There are two main reasons why CVAs are likely to be used more widely in the future:
- The groundbreaking CVA proposed by JJB Sports, the troubled retailer, has been approved by creditors including the landlords of its 250 retail outlets. Under the CVA, JJB will continue trading but pay less rent and on a monthly, rather than quarterly, basis. Previous arrangements like this, such as the proposed Stylo CVA, have been flatly rejected by landlords not prepared to accept a reduced rent or rent calculated as a percentage of turnover of each store.
- The recent Budget proposes to extend the moratorium on creditor action to medium and large companies trying to restructure using a CVA, without the need for the protection from creditors afforded by administration.