Can Restructuring Solutions Revive Covid-19 Hit Businesses?

Company voluntary agreement

By Julian Pitts

As distressed businesses embark on the mammoth task of surviving during the coronavirus pandemic, it is evident that there are no safe havens across the globe. The economic challenges posed to businesses of all sizes are unavoidable due to the likes of Covid-19 trading restrictions and the closure of non-essential businesses. As businesses review their options, hold tight to company reserves, and adapt their services to continue operations during the lockdown, economic uncertainty clouds doubt around the future of businesses already experiencing struggles.

If you are searching for ways to revive your company during the coronavirus pandemic, assessing the scope of the pressure absorbed by your business can help determine the routes available to you. If your business is asset rich, yet cash poor, company administration may offer an exit out of difficulty. If creditors are showing aggression due to unmanageable debt levels, turning to a Company Voluntary Arrangement (CVA) can help remedy the situation. If your business requires a temporary income stream to stimulate company growth, seeking commercial finance may prove worthwhile.

As governing powers across the world extend emergency financial aid to viable businesses feeling the brunt of the pandemic, sectors such as hospitality, travel and events are being forced to close shop or operate at minimum capacity. Turning to government support, such as the Bounce Back Loan Scheme to cushion your business against the financial blow may provide enough support to withstand the impact of reduced consumer demand. The likes of a Time to Pay arrangement with HMRC may also give you the breathing space you require to restructure company finances and raise funds to fulfil your tax liabilities.

How can I fast-track company rescue during Covid-19?

If your business is in the centre of a time-sensitive predicament, enduring the repercussions could result in the rapid deterioration of your company. By seeking refuge through the likes of a Fast Track Company Voluntary Arrangement, you can rapidly shelter your business from creditor pressure and the serious threat of legal action. Failure to revise business operations could result in irreparable damage to your company, leading to restructuring options to be closed off to your business. If your company is forced into compulsory liquidation, this is the final straw before it is removed from the Companies House register.

A Fast Track CVA is essentially a CVA compressed into a tighter timeframe, allowing for a faster recovery to be made, such as throughout the coronavirus pandemic. The process lasts as little as six weeks, throughout which creditors will be contacted with a proposal to restructure payments into affordable instalments. The payment plan can only be enforced following agreement from 75 per cent of creditors by value, lasting between 3-5 years. By providing your business with this safety net, you can minimise losses for creditors and keep track of your company finances.

If a Fast Track CVA is recommended by a licensed insolvency practitioner, this will be formally proposed to creditors after seeking approval from shareholders. Once the draft CVA has been submitted to the Court, a meeting will be held with company shareholders and creditors. If successful, you will pay one monthly instalment into a Trust account managed by your appointed licensed insolvency practitioner. The insolvency practitioner will forward the agreed contributions to each creditor.

Once the CVA has been approved, no legal action can be taken against your business and any existing action will also be frozen. If you default on your CVA, your business will no longer be protected from creditor action.

As the coronavirus pandemic continues to rock trade across the world, selected businesses, such as supermarkets, e-commerce platforms and food delivery services are breaking records. Using a restructuring solution can help revive the financial condition of your business and help cope with trading uncertainty.

About the Author

Julian Pitts

Julian Pitts, Regional Managing Partner at Fast Track CVA is a long-time player in the sector of insolvency and business recovery. He is highly experienced in developing innovative solutions for financially distressed SMEs, skilled in protecting livelihoods and giving ailing businesses a fighting chance of survival, including during the coronavirus pandemic.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.