Company Voluntary Arrangements Research Articles

Retail company voluntary arrangements: A dubious remedy?

AbstractDespite much debate on Company Voluntary Arrangements (CVA) among UK retailers, understanding of retail CVAs remains limited. There is continuing uncertainty about the uptake of CVAs, what aspects lead to successful outcomes and whether CVAs can be viewed as a remedy for struggling UK retailers. To address these questions, we developed and analysed a novel and detailed dataset of Companies House records for the population of retailers' CVAs between mid‐2012 and early 2021. We find that CVAs, despite detrimental impacts on other actors (landlords and suppliers), can be a useful tool for some retailers in adjusting to the new market conditions. The uptake of CVAs among retailers is stable, though not among large retailers. Retail CVAs help to avoid immediate business failure, but we found limited evidence of the success and efficient longer term outcome of the procedure, suggesting that alternative methods could be considered. The success and efficiency of CVA do not seem to depend on the size of the business, but there are variations in both the uptake and efficiency of CVAs across retail sub‐sectors. This suggests that a range of mechanisms are required to cater to the different needs across retail categories. Despite the market challenges, CVAs are not prolonged on average. However, longer duration CVAs seem to have a lower chance of succeeding and of being efficient implying that CVA cannot remedy fundamental business issues. Finally, we observed differences related to who oversees the procedure, suggesting that greater emphasis should be put on upskilling and selection of insolvency practitioners.

Dilapidations update: The effect of the COVID-19 pandemic on insolvency claims and landlord and tenant disputes

This paper addresses the ongoing impact of the COVID-19 pandemic on insolvency claims and real estate disputes between landlords and tenants. In particular, focus is given to the effect on, and changing consumer patterns in relation to, the retail and hospitality sectors and the knock-on effect this has had on landlords of business tenants. The number of company voluntary arrangements (CVAs) has grown significantly and is likely to remain high throughout 2021 and into 2022. While the Government tried to reduce the number by the introduction of the CIGA 2020 Restructuring Plan, which has several benefits over the usual CVA route, this is but one of various pieces of legislation brought in by the Government in an attempt to address the issues raised by COVID-19. There have been many restrictions introduced which limit landlords and their ability to bring insolvency claims, to seek forfeiture of a lease or to pursue rent arrears which are being phased out as of 1st October, 2021, with some landlord restrictions being wholly removed by 30th March, 2022. From recent government announcements, it appears some of the restrictions are here to stay. While both tenants and landlords struggled to survive in the midst of the UK’s national lockdowns, the Government now seems to be making it clear the economy is open for business, not quite as usual, but heading in that direction. It remains the case that some are still struggling and that negotiation with regards to payment of rent and possible rent reductions are an important tool on both sides. It will also be important for landlords to consider their options with regards to seeking repayment from third parties should it prove unviable to recover from tenants directly. Overall, it is likely we will see a change in the relationship between landlords and tenants and the terms on which they are willing to engage in the future.

Paper Series VI – Company Voluntary Arrangements

Paper Series VI – Company Voluntary Arrangements

Selective Corporate Restructuring Strategy

This article engages with a fundamental, but under-theorized, fact: that modern corporate restructuring generally, and UK and US corporate restructuring specifically, are frequently processes in which only selected creditors are impaired by the restructuring plan, and which frequently treat impaired creditors of equal rank unevenly. This selectivity stands in contrast to the foundational idea of corporate insolvency as a collective process, in which individual creditors’ rights of enforcement are suspended for the good of the general body of creditors; in which all creditors participate; and in which the proceeds of realization of the assets are distributed in accordance with the distributional order of priority prescribed by corporate insolvency law. Restructuring procedures in which certain creditors are selected by the debtor to absorb the loss while others ride through unaffected raise very different issues of distributional fairness from an insolvency procedure in which all creditors participate. Moreover, the uneven treatment of creditors who would be of equal rank in corporate insolvency law’s distributional order of priority raises quite different issues from controversies over the distributional order of priority itself. Yet, with a few notable exceptions, selective corporate restructuring strategies have received hardly any attention from corporate insolvency and restructuring law scholars. We start from the premise that selectivity – strategic decisions to engage with selected creditors rather than to engage with all creditors in restructuring negotiations, and differential treatment – strategic decisions to allocate losses unevenly among creditors of the same rank, depending on their relative commercial bargaining power – can often be justified. Selectivity reduces the direct costs of restructuring by limiting the groups whose cooperation is needed to reach agreement. And it reduces indirect costs of restructuring by helping to keep unimpaired creditors on board with the business for the future. However, there are normative questions about the boundaries within which debtors ought to be able to make use of legal mechanisms for selective and differential treatment. Our article is the first, sustained investigation of the selective nature of corporate restructuring and the mechanisms in UK and US restructuring law that facilitate selective strategies. In the article, we review how selective strategies can be operationalized in four UK law procedures: Part 26 schemes of arrangement; Part 26A restructuring plans; company voluntary arrangements (‘CVAs’); and connected party pre-packaged administration sales. Where relevant, we draw explicit comparisons with the tools available in US chapter 11. We then develop a menu of relevant criteria to distinguish legitimate and illegitimate uses of selective strategies and map our relevant criteria onto the various UK restructuring procedures and US chapter 11, concluding with some limited suggestions for reform.

An Overview of Company Voluntary Arrangements in CAMA 2020

An Overview of Company Voluntary Arrangements in CAMA 2020

A snapshot of company voluntary arrangements: Success, failure and proposals for reform

AbstractCompany Voluntary Arrangements (CVAs) are designed to be used in the UK to rescue a company as a going concern. They are under used in practice and have a reputation for high failure rates. This article, based upon a longer report funded by the UK insolvency profession, considers the nature of success or failure of CVAs. It considers empirical evidence to identify the weak points of CVAs in practice. It looks at quantitative data as well as taking into account views of practitioners and other stakeholders. Key elements of the CVA procedure are considered in light of recent national reform proposals and approaches and reforms internationally. Domestic reforms in the Netherlands and South Africa are considered to determine whether any lessons might be learnt from other jurisdictions. Recommendations are made including changes to the suggested amendments to the legal framework and to professional practice guidance.

Companies and Allied Matters Act 2020 and its Innovations: Implications for Corporate Finance and Securities Transactions

This Paper Series will be evaluating the Companies and Allied Matters Act 2020 and its innovations, particularly from the standpoint of its implications for corporate finance and securities transactions in Nigeria for individual, private and public companies and even institutional investors. Paper Series I will discuss the Repeal, Saving and Transition from CAMA 1990 to CAMA 2020. Subsequent Paper Series will discuss the Re-registration or re-organisation of Companies; Company’s Contracts, Authentication and Service of Documents on a Company; Company’s Share Capital and Disclosure of Persons with Significant Control; Share Transfer and Transaction by Company in Respect of its Shares; Debenture, Debenture Trust Deed and Realisation of Security; Procedure for Major Asset Transaction and Minority Protection; Company Voluntary Arrangements; Arrangements and Compromise and Netting.

Conflated Arrangements: A Comment on the Company Voluntary Arrangements in the Proposed Nigerian Insolvency Act 2014

The paper examines the adequacy of some of the reforms to be introduced by the proposed Nigerian Insolvency Act. In particular, it examines the provisions relating to the proposal of arrangements amongst stakeholder groups. The paper argues that arrangements have always been difficult to implement in Nigeria. It argues that the proposed provisions will not resolve the challenges faced in Nigeria. Reasons for this include in the main, the fact that there is no stay on enforcement while the arrangement is made. This issue has been contemplated several times in the UK but Nigeria did not consider it at all. The essay also indicates some of the challenges that will be introduced into the system where the provisions as set out are transplanted into Nigeria.

Employees' rights during insolvency

Purpose – This paper aims to provide an examination of the position employees find themselves during corporate insolvencies. The paper examines employees' rights under insolvency procedures such as administration, company voluntary arrangements (CVA), administrative receivership, pre-packs and liquidation, to establish whether the rescue goal can be affected by employees' claims. Priorities in liquidation are also widely examined to establish the status of employees under this procedure and their entitlements. Design/methodology/approach – Legal analysis. Findings – The law offers more protection to employees than unsecured creditors. In comparison to unsecured creditors and even floating charge security holders, employment claims stand in a highly enviable position during insolvency. Originality/value – The paper offers a wholesale assessment of the rights of employees during insolvency. There is a lacuna in research literature that addresses the issue of employment rights during insolvency.

Debt Restructuring in English Law: Lessons from the US and the Need for Reform

This paper assesses the debt restructuring mechanisms available to companies in English law, compares these mechanisms with the Chapter 11 procedure in the US, and makes some suggestions for reform of the English system in this context. Rehabilitating a company in financial difficulties will almost always be preferable to liquidation for companies and their creditors, at least where the company is merely financially distressed, i.e. it is cash flow insolvent but nevertheless economically viable, so that there is a business worth saving. Five debt restructuring mechanisms are available to companies in English law: workouts, Company Voluntary Arrangements (CVAs), schemes of arrangement, administration and, lastly, a recent innovation of practitioners has been to twin a scheme of arrangement with administration. None of these devices are ideal as debt restructuring tools, as explained in this paper. Lessons can be learned from the US Chapter 11 process, although a simple transplantation of this procedure into English law is not recommended, as there are also disadvantages to the US procedure. Instead it is suggested that the English scheme of arrangement be reformed to allow a cramdown of whole classes to take place, to attach a moratorium to this procedure and to enhance the valuation process where restructuring takes place. Making these changes would provide English law with a stronger and more effective debt restructuring procedure.

Preliminary Report to the UK Insolvency Service into Outcomes in Company Voluntary Arrangements

Corporate bankruptcy law in the UK offers distressed companies a range of formal rescue and restructuring procedures which seek to facilitate the continuation of the company and/or its business. One such procedure is the company voluntary arrangement (or for short). A is essentially a voting mechanism which allows a restructuring proposal to be brokered by the company with the assistance of a licensed insolvency practitioner and implemented if it is approved by the requisite majority of creditors. CVAs take two forms. The first is a stand-alone which does not provide for a (stay) on creditors' claims in the period before the creditor vote. The second is a CVA with moratorium which provides for a pre-vote of up to 28 days. However, the with is only available to small companies which satisfy defined eligibility criteria. Proposals to introduce a CVA with moratorium model accessible by all companies were consulted on by government during 2009 and 2010. UK bankruptcy policy is therefore drifting towards the idea that a may be needed, more often than not, to facilitate the approval and implementation of otherwise viable restructuring proposals. Yet there is very little empirical evidence as to how the existing procedures are working and whether they generate successful outcomes. This paper (which takes the form of a report commissioned by government) contains the results of a preliminary investigation of outcomes under the existing law. It seeks to provide a basic foundation for further hypothesis formation, research and policy evaluation. Our dataset consists of all 547 CVAs recorded as commencing in 2006 in England and Wales the raw data deriving from mandatory filings at Companies House, the UK companies registry. Having identified thirteen different outcomes in the entire population, we analyse a sample of 177 CVAs (32.4%) stratified according to the outcomes observed in the population to produce a range of descriptive statistics. With some notable exceptions - such as the restructuring of the English Federal Mogul/T&N group companies - usage is dominated by small companies. This of itself is not surprising bearing in mind that the vast majority of live company registrations in the UK consists of small companies. However, despite high levels of eligibility, we find that barely any of these companies use the small company CVA with moratiorium procedure. Chief among our other findings is that the stand-alone appears to be used relatively successfully in some cases as a substitute for a winding-up procedure rather than as a restructuring mechanism. We also detect some possible abuse at the margins in that companies which have failed to comply with the terms of the restructuring are able to exit from the straight to a dissolution, thus enabling their directors to escape scrutiny under our wrongful trading and director disqualification legislation.

What’s the future for company voluntary arrangements?

What’s the future for company voluntary arrangements?

Companies Act Schemes of Arrangement and Rescue: The Lost Cousin of Restructuring Practice?

It is an axiom of English corporate insolvency law that rescue of the company is the paramount consideration for insolvency practitioners and directors. This approach is evidenced by the legislative reforms introduced by the Enterprise Act 2002 in the realm of administration and more recently by Mr Alistair Darling MP’s announcement that Company Voluntary Arrangements (CVAs) with moratoriums are to be reformed following a consultation that will start in June 2009. Recent reform activity in the area of company law has also affected restructuring practice. Section 895 of the Companies Act 2006 replaces the scheme of arrangement provisions in s.425 Companies Act 1985. There have been a number of calls for reform of the scheme of arrangement provisions so as to make them more useful for facilitating company rescue. In this article these reforms, and some supposed missed opportunities, are critically examined.

UK Corporate Rescue: Recent Developments — Changes to Administrative Receivership, Administration, and Company Voluntary Arrangements — The Insolvency Act 2000, The White Paper 2001, and the Enterprise Act 2002

This paper surveys the main effects of recent legislative changes to the corporate insolvency law of the United Kingdom, from the standpoint of their potential impact upon corporate rescue. The reforms, enacted in 2000 and 2002 and brought into force during 2003, have recast the law relating to company voluntary arrangements, administrations, and administrative receiverships. After considering the various deficiencies in the pre-existing law, which rendered each of these procedures in varying ways unsatisfactory for the purpose of addressing the problems of financially troubled companies, the paper examines the process by which the declared intentions of the government when introducing its reforming legislation were significantly altered during the course of enactment into law. While the outcome of this dialectical drama has been the bringing about of some worthwhile improvements in the refashioned administration procedure, this has been accompanied by a significant dilution of the government’s previously stated intentions with respect to the attenuation of the rights and powers of creditors holding security in the form of a floating charge. Consequently, the paper concludes that administrative receivership will retain a far greater practical significance than had been previously envisaged, while the opportunities made available to floating charge holders under the revised administration procedure provide a strong incentive for institutional lenders to continue to make use of this species of security. The author concludes that UK insolvency law has been unable to embrace the “American way” of corporate rescue, with debtor-in-possession as its core principle, but has instead opted for a “rescue” model in which creditor interests continue to assert a dominant influence.

Corporate rescue: empirical evidence on company voluntary arrangements and small firms

This paper focuses on the British company voluntary arrangement (CVA) which is a relatively new debtor rehabilitation process particularly intended to help financially troubled small firms resolve their difficulties. Based on a survey that is the largest and most comprehensive on the subject of British CVAs, this paper has three principal objectives: (i) to outline the characteristics of CVAs; (ii) to examine the relationships between CVA success and context; and (iii) to provide managerial and policy recommendations based on these findings. Among other things, the study finds that the overwhelming majority of CVAs are employed by small firms and that they can be particularly successful as a means of recovery when the economic fundamentals of the business are sound, regardless of the line of activity of the firm. Higher levels of success might be achieved, however, if the fixed costs of CVAs were subsidised in the case of very small firms and if more time were allowed during the process.