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Failure rate of CVAs revealed 7 November 2016

More than 100 businesses that entered a company voluntary arrangement (CVA) in the last two years have gone into administration, says accountancy firm Moore Stephens.

It said this failure rate is a reminder for both companies and creditors that a well-structured CVA is only the starting point in the turnaround of a business.

Data from the accountancy firm found that between 2013 and 2015 128 of 1,479 companies that entered into a CVA have gone into administration.

It said this follows the collapse of BHS and Austin Reed which comes after several retailers that fell into administration during the recession, having previously entered CVAs.

In its research results Moore Stephens said some suppliers that initially support a CVA may subsequently quickly tighten their credit terms, thereby hampering the rescued firm’s ability to trade after the arrangement has been approved.

Moore Stephens explained when this happens commercial landlords are often left as the biggest losers because they allow businesses to effectively walk away from unpaid rent arrears while continuing to trade.

The firm also said such circumstances can result in commercial tenants unilaterally reducing future rent payments or amending covenants with no recourse available to the landlord.

Michael Finch, restructuring partner at Moore Stephens, said: “The number of businesses with CVAs that very quickly fail and then enter administration suggests that too many of them are missed opportunities for both the businesses and their creditors.

BHS and Austin Reed have proven that a CVA is no silver bullet for turning a business around if the underlying issues that pushed the business towards insolvency remain unaddressed.”

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