A Lifeline for Business Turnaround Management Association Company Voluntary Arrangements Eric Walls...

A Lifeline for Business

Turnaround Management Association

Company Voluntary Arrangements

Eric WallsTurnaround & Insolvency Practitioner

Director KSA Group Ltd


CVA’s and Turnaround

• KSA will present on the use of Company Voluntary Arrangements ("CVA") in turnaround situations and will focus on the practical issues of establishing the suitability of CVAs in particular situations, getting a proposal off the ground, the negotiation with stakeholders and creditors, legal and technical issues affecting the same.

www.companyrescue.co.uk


CVA’s and Turnaround

• Establishing CVA• Initial enquiry filtered by trained advisors• Looking for struggling but viable companies

• Currently insolvent or near insolvent • Under pressure, management failing• Need to restructure viable business

• Meet with board on site– Assess ALL options in detail– Report in writing as to recommended solutions



Formal and Informal Options Available?

• Trade out (TTP) + refinance: credit crunch = not easy, tougher HMRC ahead?

• Trade sale – Enough time for due diligence, high gearing and creditor threats ?

• Administration / pre pack ? SIP 16 and business issues • Liquidation – often the case that only option• Administration followed by CVA ?• CVA or company voluntary arrangement may be

suitable



CVA Candidates?

• The five key questions?• Established marketplace / niche within that marketplace• Potential to grow and prosper given

finance and management needed• Systems or management fundamentally in place or easily

implemented• Management needs determination to succeed• Chemistry – need to work together with advisors



KSA Group

• CVA process• Deal making & structuring supplies with creditors• Control creditors (creditor liaison) we call every

creditor and explain process and timetable • Restructure balance sheet (remove pressure)• Enable structure for recovery, remove people /costs• Framework to introduce financial products /liaise with

the bank and debt providers• Extensive detailed financial forecasting



KSA CVA’s• Company Voluntary Arrangement

– High levels of due diligence– Compare all options and assess viability– Build detailed statement of affairs– Build very detailed financial models– “What if“ scenario planning– Set out strategies to board, bank and advisors– Agree final deal and then take to creditors

• Typically 4-5 weeks plus statutory notice period • Say 7-9 weeks overall, or longer



CVA’s, Banks and Pre-Packs • CVA has huge flexibility and power

– Can control winding up petitions with case law and aggressive counter legal action

– Consensus always best though!• Many advisors and bankers not aware of the CVA approach

– KSA always talks to bank with a plan– CVA’s usually little impact on bank remedies and securities

• Most banks against pre-packs to incumbent directors / members– CVA more acceptable now?

• Will landlords start rejecting JJB style CVA’s?



CVA Deal Structure?

• Generally we set say 40-60% of future net profits into scheme

• Typically five year phased deal with monthly contributions

• Bank capital payments frozen or continued– Detailed cashflow determines what is required

• Seek new ABL finance or investment if needed• RPO picks up claims for redundancy / notice• Exit property quickly



CVA Deal Structure (cont.)

• Often seek introduction of non exec finance director– Improved financial and management reporting

• Determined various unwanted lease / HP deals– Re Doorbar and Park Air Services– Standstill agreement on wanted lease/ HP deals

• Exit property, factories, retail outlets



CVA Benefits for bank?

• No asset meltdown & crystallisation of loss in administration

• No loss of securities or remedies• Improved financial reporting obligatory in our CVA’s• Supervisor to “police” CVA• Reduction in bank management time• CVA brings end to creditor pressure• HMRC Petitions e.g. withdrawn



Benefits for creditors?

• Trade creditors get dividend plus ongoing trading on cash terms

• Retain a future customer• Supervisor oversees CVA contractual obligations• Business must pay future taxes on time

– Mitigates costs to state of benefits, redundancy costs– Default if not paid

• HMRC will closely examine future payments and returns• Return generally better than terminal• Consensus and involvement - not fait accompli like pre-pack



Benefits for Board/ Members

• Still managing the business• No PG call up, no loss of homes• Remain in control with tighter management &

reporting controls• Steadily trade out of troubled waters• Repay creditors who had faith in them



CVA Benefits • CVA is a powerful consensual solution

– Not suitable for many cases• Avoid asset meltdown • Avoid intervention by FSA (financial) SRA (for lawyers)

– KSA proposed first LLP CVA for a law firm in 2008• Avoid usual loss crystallisation for charge holders• Restructure business aggressively, remove fixed,

overhead and people costs• Cost effective process v administration

– Less risk for office holders too!



Eric Walls & KSA Group Ltd

• Eric Walls KSA Group– Licensed IP – UK Director of Turnaround & Insolvency KSA– Involved in CVA led turnaround since 2001

• KSA has a team of 20 with 2 insolvency practitioners• Cover the country with 3 offices & a team of regional

managers• Learn more about CVA’s and KSA at

– www.companyrescue.co.uk


A Lifeline for Business Turnaround Management Association Company Voluntary Arrangements Eric Walls...

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