Leon, the well-known fast food chain, has entered administration and is planning to exit with a Company Voluntary Arrangement (CVA). This move highlights how using the right insolvency tool at the right time can save a business. Chris Worden explains how a CVA works and what directors need to know.
- Leon is using a CVA to restructure and survive
- CVA allows businesses to renegotiate debts and keep trading
- Directors retain control during a CVA
- Acting early is crucial for success
- Not every business is suitable for a CVA
What Happened to Leon?
Leon appointed administrators due to high rents, changing customer behaviour, unsustainable tax debts, and unprofitable sites. Their plan is to close loss-making locations and use a CVA to restructure and relaunch.
What Is a CVA?
A Company Voluntary Arrangement (CVA) is a legally binding agreement between a company and its creditors. It allows a business to restructure debts while continuing to trade. Directors stay in control, and an insolvency practitioner supervises the process.
Key Features of a CVA
- Directors remain in control of the business
- Creditors freeze enforcement actions if the CVA is accepted
- One affordable monthly payment is made to creditors
- Only debts the business can afford are repaid; the rest may be written off
How Does a CVA Work? Step by Step
- Assess viability: The business must have profitable parts worth saving.
- Appoint an insolvency practitioner: They draft the CVA proposal and review debts and cash flow.
- Prepare the proposal: Details repayments, duration (usually 2–5 years), and operational changes.
- Creditor vote: 75% by value must approve for the CVA to pass.
- Trading continues: Directors keep control, and creditor pressure stops.
- Completion: After payments, remaining unsecured debt is written off.
Why a CVA Can Save a Business
A CVA helps tackle fixed costs and creditor pressure, giving breathing space to restructure. For hospitality businesses like Leon, it can mean immediate rent reductions and the chance to close unprofitable sites.
When a CVA May Not Work
- The business is not viable even after restructuring
- Directors are unwilling to cut costs
- Cash flow is unrealistic
- Creditors have lost trust
- The company cannot afford CVA contributions
If a CVA fails, liquidation is often the next step.
Key Takeaways
- Act early—don’t wait until it’s too late
- Be ruthless about cutting unprofitable parts
- Maintain trust with creditors
- Cash flow is critical
- A CVA is a rescue tool, not a failure
Chris Worden stresses that the businesses which survive are those that restructure before hitting the wall. If you’re a UK director under pressure, consider whether a CVA could help you protect what’s worth saving.
FAQs
- What is a CVA?
- A Company Voluntary Arrangement (CVA) is a formal agreement with creditors to repay debts over time while continuing to trade.
- Who controls the business during a CVA?
- The directors remain in control, with an insolvency practitioner supervising the arrangement.
- How long does a CVA last?
- Most CVAs last between two and five years, depending on the proposal agreed with creditors.
- Can all debts be written off in a CVA?
- Not all debts, but unsecured debts that cannot be repaid may be written off at the end of the CVA.
- When should I consider a CVA?
- Consider a CVA if your business is viable but struggling with debts and creditor pressure. Act early for the best chance of success.
If you need advice on CVAs or business rescue, contact us today for a confidential discussion.
