CVAs — supporting businesses or spoiling them?

You can’t give her that!’ she screamed. ‘It’s not safe!’
IT’S A SWORD, said the Hogfather. THEY’RE NOT MEANT TO BE SAFE.
‘She’s a child!’ shouted Crumley. ‘
IT’S EDUCATIONAL.
What if she cuts herself?’
THAT WILL BE AN IMPORTANT LESSON.

CVAs on the rise…

• So says Terry Pratchett in Hogfather — and he has a point
• Mistakes must first be made if we are to learn from them
• Many operators have recently resorted to Company Voluntary Arrangements (CVAs) that radically reduce their cost structures
• More CVAs are likely to come in the months ahead
• We question whether the relief they bring outweighs  the precedent they set

What does this mean?

• CVAs allow recognised operators such as Prezzo and Jamie’s Italian to stay in business
• This in turn provides stability for a wider ecosystem of suppliers and employees
• Typically the landlords suffer but this is often because they have made themselves part of the problem by pushing up rents
• The real, if indirect, victims of the CVA are the successful operators that don’t need them
• CVAs risk rewarding failure — good, sensible operators are penalised if irresponsible or undesirable businesses are bailed out and given advantageous terms

Tough decisions…

• There is a micro/macro disconnect here
• On a micro level, CVAs provide emergency relief to the entity and its stakeholders, saving jobs
• On the macro level, however, CVAs can distort and compromise the market, getting in the way of healthy and necessary corrections
• Terry Pratchett’s IMPORTANT LESSON is left to be learnt at a later date