Calls for greater use of CVAs in Scottish recovery

Dundee-based restructuring and insolvency specialists Dunedin Advisory believes that using existing legislation with the use of a Company Voluntary Arrangement (CVA) and the provisions within the new restructuring bill currently being considered by parliament may be more readily used as a mechanism to formalise restructuring plans.

Calls for greater use of CVAs in Scottish recovery

Christine Convy CA, founder and director of Dunedin Advisory, said CVAs are “a useful tool in post-COVID business rescue” however does give a warning to practitioners and business owners to consider their format carefully.

She said: “It is essential that sufficient time is taken to scrutinise business plans and information to ensure the correct proposal is put in place.”



For Ms Convy, fundamental to this are the following key components:

  • The insolvency practitioner and professional advisors need to have trust in the management team skill and capability
  • The business needs to demonstrate a real chance of success
  • It must not be used as a method to buy some time with the inevitable liquidation of the business at a later stage which is not in any stakeholders interest
  • Where there are uncertainties, particularly as the new post-COVID norm, is not known, flexible outcomes must be built into the proposal to avoid its unnecessary failure.”

Tim Cooper, partner, Addleshaw Goddard and chair of R3 in Scotland, added: “The poor use of CVAs historically, being a sticking plaster solution to insolvency, and not addressing the reasons for the underlying business distress. They are an excellent tool, if used properly. Case law across the UK demonstrates the Courts perceive them as a flexible process provided they are transparent.

“There have been very few CVAs in the past — only one in Scotland in recent years with the majority of CVAs undertaken across the UK resulting in liquidation.”

Mr Cooper added that the “wasted opportunity to use this tool, which has been with us for almost 35 years, as a means of delivering genuine and long term restructuring to a business ensuring rescue, renewal and recovery for all stakeholders”.

John Clarke, partner, Wright Johnston Mackenzie, commented: “It is always the case – but never more so than now – that anyone worried about their business should take advice sooner rather than later. The business recovery advisers have a number of ‘tools’ that they can deploy, and in the right circumstances, CVAs are excellent. But, to maximise their value, they need to be used early in the recovery process.”

Dunedin Advisory said that our culture in the UK shies away from any hint of insolvency.

Christine Convy said: “Unlike other countries, who embrace change and continually negotiate using insolvency or failure to learn from and move forward, we have a reluctance to use insolvency in a positive manner. The effective use of pre-packs in Administration as a solution in appropriate circumstances often comes with a backlash of criticism.”

Gillian Carty, partner, Shepherd and Wedderburn, also argued for greater use of the CVA process.

She said: “The restrictions now placed on enforcement generally are creating limitations on actions available to creditors in the recovery process. Legislation currently before parliament seeks to support a rescue culture with far-reaching changes recognising the value of a moratorium to provide some time for companies to work through issues caused by the current COVID-19 crisis.

“The current insolvency act already provides a moratorium protection for SMEs as part of the CVA process which is a very flexible tool. Now is the time to be imaginative in finding a workable solution that is not too costly for SMEs to consider and is a viable proposal for all stakeholders.”

But Ms Carty warned that the provisions in the Corporate Governance Insolvency Bill look like they will be onerous and therefore probably too costly for SMEs to consider.

She added: “There are strict criteria to qualify for the small company moratorium, a need for creditor consent, and a need to structure the proposal so that creditors understand how the proposal compares with the alternatives.”

  • Read all of our articles relating to COVID-19 here.
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