There is a general acknowledgement that the economy faces a very uncertain future. Widespread concerns as to the depth of any recession are now daily front page news. There are concerns about what happens when the business is up and running again and how long will it take for customers to get spending so that any debts that have accrued throughout lockdown can be paid?
This 2nd question is one which may be addressed by companies using a company voluntary arrangement (a “CVA”). This is where a company will make an arrangement with its creditors whereby the creditors agree that they will accept payment of debts over time and on terms agreed If 75% of the creditors (by value) agree to the terms of the CVA then all of the creditors are bound by the terms.
The CVA has been described as the best rescue tool for a company that is viable going forward but is burdened by historic debt and many companies may now fall into that category. A CVA generally offers a better alternative to both creditor and debtor than insolvency. I think that we will see many companies turning to this possible solution.
There is also the option for sole traders to do the same thing through the use of an individual voluntary arrangement (an “IVA”) which works in very much the same way as a CVA.
It is inevitable that the number of liquidations, administration and bankruptcies will rise but these alternative arrangements may give businesses and business owners an option to find some breathing room and stay afloat.
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