AS Mothercare UK becomes the latest retailer in a CVA to go bust, it’s time to examine how often these restructuring efforts actually work.
For the unitiated, a CVA is where sickly companies persuade landlords to accept lower rents while they nurse themselves back to health.
Of the 552 CVAs under negotiation in 2013, only 19% got under way in the first place. Of those that were started, 20% fell into insolvency immediately after the CVA period ended. A further 14% fell over soon afterwards, à la Mothercare. Only 68 companies — 12% — survived. Pathetic.
It’s also far from clear CVAs increase the chances of unsecured creditors getting back their dues. On average, they paid only a quarter of the money promised when the CVA was set up.
CVAs too often represent the triumph of bosses’ optimism over reality. Think about it. Why did Mothercare believe it would find a buyer in these terrible markets?
When the next restructuring expert comes pitching a CVA, landlords may want to bite the bullet, say “no” and find new uses for their properties.
