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Does Company Voluntary Arrangement Work for Large High Street Retailers?

The last couple of years have been really hard for high-street retailers, with companies like Carpetright, Toys R Us and New Look entering into insolvency procedures. High-street casualties can be attributed to a number of factors, including increased rental costs and business rates, effects of online shopping, reduced footfall because of customer preferences and effects of Brexit. For the uninitiated, an insolvent company under UK insolvency law can enter into CVA (Short for company voluntary arrangement), with majority of creditors. Such agreement allows the company repay all or parts of the debt over time, under certain circumstances, while focusing on business revival at the same time.

When does CVA work?

CVA advisors like Business Rescue Experts believe that company voluntary arrangement isn’t the ideal financial advice for companies facing insolvency or financial difficulties in general. However, under certain circumstances, this can be useful. For example –

  1. The company just has historic debts but can handle regular expenses for current operations.
  2. The company been undergoing considerable material change in trading, which may steer it to profitability.
  3. CVA might also be useful for a restructuring agreement.
  4. To wind a company, but without liquidation and certain consequences.

The fourth option is hardly ever considered, mainly because of the increased costs. Also, if CVA fails, creditors will have to deal with more losses compared to liquidation.

Are CVAs recommended for high-street retailers?

In terms of profitability, large store-based retailers haven’t shown massive growth in recent years, which means that most of these retailers not dealing with historic debts alone. In case the business has been recently restructured, CVA can be used as a means to handle that. In practice, unless retailers change the way they operate, CVAs might not be fruitful to them as expected.

Some of the better steps for material change include –

  • Narrowing operations to a specific niche
  • Selling products so customers want the same
  • Improve in-store experience for customers.
  • Powerful use of social media and other channels for increasing brand loyalty.

With online retailers, especially the giant ones, customer experience has been a major concern. Think of issues like wrong product delivery and delay in services. In-store retailers can complete on these aspects, only when they focus on customers, cut down costs, and in such situations, CVAs might help.

Final word

As first VAT quarter was use, Toys R Us CVA failed, because there was no significant change in the way they operate or the way they managed things. As such, if you are a retail business that wants to make the most of CVA, consider talking to advisors and learn more about what you can possible do to make a CVA work, especially if seems like viable option.

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