Brett Barton
Brett's recent articles
- Where can I find cash?
12th February - Happy New Year
7th January - Christmas Spirits
18th December
A New Dawn for the Company Voluntary Arrangement (CVA)
13th November 2008 08:48
The speed with which the down turn has arrived is having a dramatic effect on the turnover of many companies in the U.K. Unfortunately for many companies, the speed of change in turnover cannot always be matched with similar speeds in cut backs in costs. Also, it is a fact of business life that in cash flow terms, last month’s bills are paid for with this month’s sales and if the sales are not there, neither is the cash to pay creditors.
The net effect of this dilemma is the failure of perfectly good businesses with good potential but a severe cash flow problem. Until they demonstrate differently, the banks are not prepared to cover this funding deficit and therefore business owners are left with the problem of funding the shortfall.
One possible solution is an insolvency procedure that has been with us since 1986 in the form of the CVA. I believe that this procedure, much discredited in the past and rightly so, is now a very good solution for a company with an inherently good business but in need of a breathing space to restructure. Yes creditors may have to take a write off in respect of part of their debt but surely this is better than losing the whole debt if the company were to cease trading.
The CVA has to be carefully thought through and there are a number of problems that need to be overcome. However, I think that in these unique times, the CVA is a real tool in our armoury to help companies fund their cash flow deficits.
