Number of CVAs agreed by businesses falls 47%

The number of Company Voluntary Arrangements (CVAs) agreed between businesses and creditors has reportedly fallen by 47% to 110 in the last 12 months, down from 206 the prior year, according to Mazars.

The firm warned that as the UK enters another period of economic difficulty, companies will now find it “much more difficult” to secure CVAs, and therefore more companies will find it harder to “stave off” administration or liquidation.

After a 2020 change in the law, HMRC is now able to reclaim tax debts for VAT, PAYE,  National Insurance ahead of repayments to other creditors, even in a CVA. 

Mazars said the impact of this change is that trade creditors and landlords are likely to receive a lower return and suffer a longer wait for any payment under a CVA. It added this lower return or delay is “likely to result in general unsecured creditors voting against any CVA proposals”.

Rebecca Dacre, partner at Mazars, said: “As it becomes more difficult to agree a CVA, businesses will also find it harder to avoid closing entirely if there isn’t anyone interested in buying the business, which is bad news for employees.

“CVAs can provide time to help a business through a particularly tough period and are an essential tool in the insolvency toolkit. They can preserve more jobs and debt repayments in the long term than would be the case if the business went into administration or liquidation.”

She added: “A CVA also allows for the current management to remain in place, meaning companies can benefit from continuity and experience in a turbulent time.

“It is understandable for HMRC to be a preferred creditor with a view to recover money owed to the taxpayer. But it must be recognised that the unintended consequence of this is fewer companies entering a CVA. Directors will have reduced options, other creditors will have potentially worse returns and ultimately more administrations are the likely result.”