The Association of Business Recovery Professionals (R3), has developed a Standard Form to help SMEs that have been affected by Covid-19 to enter a formal debt arrangement with their creditors.
The new Covid-19 CVA focuses on the issues experienced by SMEs specifically in these unprecedented times, where the ability to trade can quickly be damaged by local lockdowns and restrictions.
It aims to help SMEs recover their financial footing by providing time to build up trade without the threat of creditor legal action. So what exactly is the new Covid-19 CVA, and how does it work?
What is the new Covid-19 CVA?
A Company Voluntary Arrangement formally renegotiates an insolvent but viable company’s debts, allowing them to trade whilst repaying creditors over a longer period of time. The new Covid-19 CVA is intended to mitigate the devastating effect of Covid-19 on SMEs that were previously profitable.
An extended period of time is provided to build up trade so the business has a stronger financial foundation before they have to commence repayments. Other measures can also be put in place that address the possibility of future Covid-related trading restrictions.
CVAs have been instrumental in helping larger businesses to avoid liquidation, but the Standard Form introduced by R3 focuses on helping SMEs, in particular, to benefit from formally restructuring their debts.
How does a Covid-19 CVA work for SMEs?
The new Covid-19 Company Voluntary Arrangement differs from a ‘standard’ CVA in that SMEs have a period of time before they’re regarded as having recommenced trade.
- An ‘Introductory Period’ of up to three-months from when the proposal is approved
- A further ‘Breathing Space’ from either:
- The date the proposal is approved
- The first day of the month following when the Supervisor believes the company has substantially recommenced trading
Once this time has elapsed the Payment Period begins, but flexibility is also built in there.
Although the starting point is to repay the company’s debts in full, there is scope to adjust the monthly payments where necessary or pay a smaller return to creditors overall – if local lockdowns are brought in again, for example, and trading has to stop or is severely compromised.
How does the Covid-19 CVA help smaller businesses?
The support and flexibility of this new formal arrangement reflects the reality of trading as an SME during the coronavirus pandemic, and is a key feature of the Covid-19 CVA. Many smaller businesses were thriving before the pandemic, and have suffered a devastating loss of trade through no fault of their own.
The new Company Voluntary Arrangement will help more SMEs survive extreme creditor pressure, providing a supportive structure in which to repay their debts. If circumstances change, flexibility is inherent in the arrangement to reduce the repayments to an affordable level.
For more information on the new Covid-19 CVA and the R3 Standard Form, please get in touch with our expert team at Fast Track CVA to arrange a free, same-day consultation. We’re CVA specialists and can establish whether the new CVA is an option for your company.