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Thursday, 9 May 2013

CVA versus Pre Pack Debate

We had almost 100 people come to attend the debate last night at the TMA London event to debate CVAs versus pre packs as an insolvency mechanism.

The audience got to hear about the relative merits of each mechanism and when they are best applied.  There was the inevitable concerns that Pre Packs are unethical and that creditors perceive that they have been "stiffed".  Others were concerned that CVAs leave directors in control and there is no new money brought in to provide working capital.  All these concerns were addressed and debated.

At the end of the evening the vote moved towards CVAs being the better option. However, it was agreed that it is very much "horses for courses" and that all options should be considered.  There is alot of misunderstanding around both of the mechanisms and they each have their place.  The debate highlighted that the power of the CVA is often underestimated, which may explain why so few of them are done.  It also showed that a pre pack can be very effective where there is a danger of the business value falling rapidly but there is someone that can take it over to preserve the business and save jobs.

A pre pack is perhaps more open to abuse than a CVA due to its often rapid execution but there are always going to be a minority of people who don't play fair.

It should be remembered that IPs are brought in after the company is insolvent and needs radical restructuring or closure to prevent a complete meltdown of asset values, loss of jobs and not all creditors being treated fairly as required by law.





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Many thanks for your comments. If you have a private business problem and you want advice give us a call on 0800 9700 539 or email me at keiths@companyrescue.co.uk. If you are a professional advisor with a troubled client, please suggest they visit www.companyrescue.co.uk or contact me as above.

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