Insolvency regime reform: CVA extension welcomed but rights of secured creditors flagged

Commenting on last night's announcement by the Insolvency Service that it has opened up consultation on proposed reforms to the insolvency regime, Richard Heis, restructuring partner at KPMG, said:

“As promised in the Budget announcement, the Government has issued a new consultation on changes to the insolvency regime. It has a welcome focus on extending the role of company voluntary arrangements (CVAs) as a rescue tool. A CVA, unlike an administration, means the company remains under the control of its management, making it a much more effective tool in achieving corporate rescues.

“The suggested extension of the moratorium and ‘super priority’ of rescue finance sound superficially attractive, but it is critically important that the contractual rights of secured creditors are not overridden, which would have serious implications for the availability and cost of bank finance. Also there will need to be protection for creditors to ensure that they are not kept at bay unfairly by irresponsible management teams wasting their time and money on plans that do not stack up.”

KPMG has advised successfully on two high profile CVA proposals recently: for AIM-listed caravan retailer Discover Leisure (approved by creditors yesterday) and for the sportswear retailer JJB (implemented at the end of May).

(Source - KPMG News Release)

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