CVAs are coming to the rescue for Covid-hit high street brands

New Look, Moss Bros, Pizza Express, Jigsaw, and now Pizza Hut – Company Voluntary Arrangements (CVAs) are coming to the rescue for high street brands as they experience a dramatic drop in cash income, turnover and profits due to Covid-19. Even though they have been closed, these businesses are still accruing debt such as rent to landlords which will have to be paid at some point. When businesses re-open or start to see an increase in trading, they will need to find a way to pay historical debt which has accrued during the pandemic and of course ongoing debt. In short, they will need to catch up to survive into the future.

Cory Bebb, partner in the corporate recovery & insolvency team at JMW Solicitors, says: “CVAs are effective tools for saving a viable trading business whilst enabling it to write off or re-schedule historical debt. One would hope that creditors of a viable business will be sympathetic to a CVA proposed by an otherwise viable business hit by the pandemic, and it is expected that CVAs will become a common feature of commerce in the near future.

“A CVA is effectively a plan for future trading put to creditors, together with an offer to pay historical debt in full or in part. A typical CVA will last anything up to 5 years, and will write off some of the historical debt to allow the company to trade on into the future. Creditors benefit because the alternative of liquidation will usually see a reduced return on their debt, if anything at all.”