For those who missed it, the Insolvency Service released an excellent research report at the end of June that focuses on the treatment of owners in corporate voluntary agreements (CVAs). This has happened in the context of a large number of “owner” CVAs in recent years – particularly in the retail and casual dining sectors – where owners have often complained that they have been treated unfairly compared to other compromised creditors. The report concludes that owners are generally treated fairly compared to other categories of unsecured creditors. But he acknowledges that the level of compromise for owners may be underestimated.
The sample of CVAs reviewed by the authors of the report was relatively small (59 in all), but from this small sample they identified some points that those launching CVAs should keep in mind to provide greater clarity and improve how stakeholders understand CVA:
- Length and clarity of CVA proposals – perhaps unsurprisingly, of the CVAs that have been reviewed, many were meant to confuse rather than enlighten. The inclusion of summary tables and executive summaries clearly indicating the rights applicable to all categories of creditors (and possibly also a post-CVA balance sheet illustrating the impact of the CVA) was thought to improve this. (Although, in my personal experience, the inclusion of such executive summaries can often exacerbate confusion by adding an element of repetition).
- Consultation – more consultation with key stakeholders was deemed necessary. The authors of the report suggested that SIP 3.2 be updated to include consultation with the British Property Federation (BPF). To some extent, I expect this to be happening already, with many of the more recent CVAs only launched as a result of dialogue between the company and the BPF.
The authors of the report conclude that the CVA offers a flexible and cost-effective restructuring solution that bridges the gap between informal negotiations and formal insolvency proceedings such as administration or liquidation. That seems like a fair summary, especially considering that other insolvency proceedings – such as the new restructuring plan – are more expensive and take longer to initiate due to court intervention. Until that changes, the CVA will continue to interest many people.
That said, the number of CVAs has dropped significantly over the last year or so. We are arguably already past the high point of so-called “proprietary” CVAs which tend to focus on the obligations owed to owners and have often left owners feeling particularly aggrieved by the results. My personal feeling is that many recent CVAs have been documented relatively considerately following the fallout from CVA challenges such as those seen on Debenhams, New Look and Caffe Nero CVAs. In other words, many companies, when launching CVAs, may have already learned from the previous experience of others.
But there may be more to come. The report’s authors suggest there could be something to be gained by taking steps to exclude uncompromised creditors to avoid vote flooding. However, this would be subject to consultation with key stakeholders and industry bodies. Ask yourself if anyone wants this!
Perhaps unsurprisingly, of the CVAs that have been reviewed, many have been designed to confuse rather than enlighten.