Supporting a business through the CVA process
Whilst the majority of the time Business Recovery specialists are asked to review businesses by accountants, we are often approached by funders or banks whom have a financial interest in the business.
Recently, Cowgill Holloway Business Recovery were asked by a funder to review a business where they had a significant financial interest. The business and its directors already had an existing Business Recovery adviser, who had already recommended a CVA, however the funder wanted to ensure that should the CVA not be approved by HMRC, that their financial exposure was not further effected.
The business itself had started to struggle with constant cash flow issues, due to a period of significant growth over a short period of time, and suffered with overtrading. The directors of the business had recognised their issues, and had taken advice from another firm of recovery advisers, as they believed that a CVA process would be the correct course of action.
Due to the position of the business, the funder asked us to review the business and measure their exposure, effectively managing the payment book of the business to allow only “business critical” payment during this period, as to not further increase their exposure. The company were made aware of this arrangement, and the directors agreed to let us handle the financial position of the business and to review any further outgoings.
Over the six week period, Cowgill Holloway Business Recovery performed detailed reviews of all funding requests undertaken twice a week, and had to ensure they understood the nature and the trading activity of the business, which allowed them to facilitate payments which were “business critical”, and ultimately generated further income for the business.
This managing of the financial payments, allowed the funder to ensure that should the CVA not be approved, the impact would not be of further detriment to the funding provider. Initially, we expected the CVA not to be approved by HMRC, which was the case, with HMRC requesting modifications to the CVA.
This support enabled the business to continue to trade effectively until the creditors’ meeting, whilst continuing to protect the funders’ exposure in the interim. In our opinion, it is unlikely that the business would have been able to continue to trade in this period, therefore significantly reducing the chance of the CVA being approved and potentially leading to the business being shut down and potential staff redundancies.
Looking at the position of the scenario now, it’s a particularly successful outcome; due to Cowgill Holloway Business Recovery manging the process and payments, the business continued to trade during the period of having the CVA approved; the approval of the CVA allowed the business to restructure and continue operating, therefore saving a high proportion of the jobs which may have been lost had the business entered into administration or liquidation; and finally, due to the funder being happy with the whole process, they’re willing to continue financing the business, and continue a positive business relationship with the company and its directors.
The information was correct at time of publishing but may now be out of date.