Insolvency trade body R3 has launched a free standard form for company voluntary arrangements (CVAs), which aims to make it easier for small businesses affected by the Covid-19 pandemic to enter a CVA, by providing a foundation for directors’ proposals to be developed
The firm, available from R3’s website, includes a breathing space period to allow a business time to restructure without fear of action from its creditors, to be followed by a payment period where a company’s debts are paid in line with the CVA agreement.
No recommendations have been made for the timescales of these periods, in order to allow the business and its creditors the freedom to negotiate them.
An additional introductory period of a maximum of three months is also included in the document for businesses who have not resumed trading as a result of the pandemic, as well as the ability to temporarily halt payments if the business is in local lock-down.
The form has been drafted by R3’s general technical committee (GTC) chair Stewart Perry, a partner at European law firm Fieldfisher, and Professor Peter Walton, professor of insolvency law at the University of Wolverhampton and a member of the committee.
Perry said: ‘SMEs are the backbone of the UK economy, but these businesses have been hit hardest by Covid-19 and the subsequent lockdown. As a result, many of them will have been forced to consider an insolvency process or seek insolvency advice when they would most likely have never had to in normal circumstances.
‘These documents aim to make CVAs as accessible as possible to them so they can benefit from the flexibility and business rescue support a CVA provides.’
Professor Walton said: “Our CVA form provides a clear outline of the CVA process. It details what businesses need to do to reach an agreement with their creditors, settle their debts, and turn their situation around.
‘We hope it will enable more businesses to benefit from CVAs by making the process more understood and more accessible – and that by doing so, it will help more businesses stay open, preserve more jobs and keep more money flowing through the economy.’
Most recent government figures show the overall number of company insolvencies decreased by 43% in August 2020, when compared to the same month last year. This was primarily driven by a decrease in the numbers of creditors voluntary liquidations (CVLs) and compulsory liquidations which fell by 39% and 67% respectively.
The number of CVAs in August 2020 was 50% lower than in the same month last year, though the numbers were small (15).
Analysis suggested the overall reduction in company insolvencies was likely to be, in part, driven by the range of government measures put in place to financially support companies in response to the coronavirus pandemic.
The government also announced in late April that it would temporarily prohibit the use of statutory demands and certain winding-up petitions from 27 April to 30 June 2020. This was further extended to 30 September under the Corporate Insolvency and Governance Act.