Increasing use of company voluntary arrangements (CVA) have come under fire as a vehicle to avoid debt burdens. Tania Clench, legal director at Cripps Pemberton Greenish, considers these criticisms, the impact of recent developments in insolvency law and potential future reforms
Company voluntary arrangements (CVAs) have come under criticism for being a mechanism that enables businesses to leave awkward debts behind rather than one used for genuine re-structuring purposes.
One of the criticisms of the restructuring procedures available in the UK has been the lack of a ‘debtor in possession’ process under which the directors of a company are left in control to implement a rescue or restructuring plan with the benefit of a moratorium, similar to the Chapter 11 process in the United States.
The closest thing the UK has to such a ‘debtor in possession’ process is the CVA. In recent years, the CVA has been widely used in the retail and hospitality sectors to re-write contracts, cut property-related costs, and close down underperforming retail stores and restaurants (often referred to as ‘CVA abuse’).
Whils
