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R3 backs Government consultation on business rescue

 

R3 Yorkshire regional chair Andy Wood, a partner in The P&A Partnership, explained: "The Government's consultation will look at supporting ailing companies by considering giving 'absolute priority status' to funding lent to companies in a Company Voluntary Arrangement (CVA) or administration.

 

CVAs enable the directors of companies in severe financial difficulty to negotiate affordable repayments with creditors, resulting in an agreed payment plan. They are a 'moral' approach to tackling debts as, not only can a CVA save the company, it also avoids the business going into administration or liquidation, which would result in a lower return for creditors.

 

Rescue funding for struggling business is vital, though it has to be done very carefully because if you allow 'leap-frogging' over existing secured creditors there is a risk of undermining the confidence in the bank lending system.

 

Andy Wood stated that the consultation seeks to encourage the use of CVAs as there is an intention to extend the moratorium against creditor action to medium and large companies. This would grant an instant protection against creditors and give organisations valuable time to reach an agreement with creditors.

 

He said: "Although not suitable in every instance, CVAs can be an excellent rescue tool, helping companies which are profitable in the long-term to overcome a period of financial difficulty. Once the CVA has been agreed and the company's liabilities restructured, more of the money generated by the company can be used as working capital rather than paying old debt."

 

They can certainly be a viable method of giving companies breathing space to survive, something which should be welcomed in these challenging times.

 

Currently, only around 500 CVAs are completed annually in the UK.