How can Covid-stricken businesses fight off the threat of closure?

Keith Tully, Managing Partner at Begbies Traynor Group Liverpool, (Knowsley Chamber, Executive Partner) talks us through what we can all be doing to help our business survive and thrive post pandemic and could a fast-track Company Voluntary Arrangement (CVA) provide a suitable solution?… 

If your business is in cash flow distress following the financial and economic impact of the coronavirus pandemic, meeting liabilities post Covid-19 and firefighting mounting debts may seem like an unachievable task.

Depending on the insolvency threat level and the scale of damage absorbed by the business, seeking specialist advice at an early stage could prevent your business from snowballing into further debt, resulting in irreparable damage. The time-sensitivity of the situation should be your core concern; if your business is unable to overcome the economic challenges caused by Covid-19, this could be impact on future viability; shutting you off from prospects of recovery.

The output of many UK businesses has screeched to a standstill, however, as the economy resumes, it is crucial that you take stock of your business situation now in order to fight off any financial and operational threats going forward. There are several recovery measures which can protect your business, however, taking into consideration the ticking clock and the viability of your business, a fast-track Company Voluntary Arrangement (CVA) can provide a suitable solution.  A CVA provides breathing space from creditor pressure allowing your business to enter into an affordable repayment agreement while retaining ownership of your business operations.

How can a fast track Company Voluntary Arrangement prevent business closure?

If your business is struggling under the weight of mounting liabilities caused by trading restrictions in the last six months, a fast track Company Voluntary Arrangement offers a real opportunity for viable businesses to release creditor pressure and safeguard the business itself.

Eligible businesses can take quick action to prevent further financial decline, without detriment to creditors who typically receive greater returns under a CVA than if the company had to liquidate.

The fast track CVA enables agile companies to take positive action in a supportive environment, and can be pivotal for those businesses that were experiencing strong growth before the coronavirus pandemic took hold.

The CVA is conducted by a licensed insolvency practitioner and can only be initiated if they are confident that your business will be able to maintain payments consistently, as by failing to do so could lead to permanent closure.

Bob Maxwell, business recovery expert, says: “A fast-track Company Voluntary Arrangement provides flexibility during these unprecedented times. As the government are due to taper down financial support and long-term borrowing multiplies, businesses across the country are grappling for a lifeline.

“If a business has realistic prospects of recovery, a CVA can work in favour of both parties – the creditor and the debtor. A fast-track CVA aims to turnaround the fortunes of businesses impacted by the pandemic, minimising disruption and prioritising time sensitivity. We can assess the likelihood of business survival following a CVA through a free consultation with the company director, giving you the opportunity to retain company control and mitigate against the possibility of liquidation.”

How can a fast track CVA prevent business closure?

A Company Voluntary Arrangement can help make costs more digestible for the business by dividing and spreading the liability over a larger time scale. By providing breathing space to the business, it can help refocus efforts to Covid-19 business recovery as the pandemic has had an unprecedented effect on businesses of all sizes, from multi-million-pound enterprises, to independent, owner-managed businesses. The CVA ringfencing can provide a protective barrier to your business against legal action from creditors, helping you remove external threats and remain focused on business rescue.

A Company Voluntary Arrangement requires an agreement to be made between the debtor and creditors, and for the agreement to be passed, a majority of over 75 per cent should vote in favour. Creditors are typically responsive to this arrangement as it increases the likelihood of receiving returns, rather than the debtor entirely defaulting. A fast-track CVA compresses a typical CVA into a shorter period, giving you the financial ability to restart the business with a stronger outlook and healthier balance sheet in as little as six weeks.

The economy is unlikely to imminently resume trading at the same level as pre-Covid-19 as strict social distancing measures remain, local lockdowns continue to be rolled out and the threat of a second wave remains in sight. Businesses are fighting to recuperate from months of non-existent trading; however, liabilities continue to soar, and customer demand is yet to stabilise. If your business is struggling to stay afloat, with no sight of withstanding the pressures of the pandemic, seek specialist advice from a licensed insolvency practitioner as soon as possible to give your business a fighting chance against this relentless virus.

For more information, contact Keith Tully, partner at Real Business Rescue, Liverpool, on 0151 676 9613 or email liverpool@realbusinessrescue.co.uk