Business Weekly - Cambridge, UK

Portland Direct Marketing Ltd used a Company Voluntary Arrangement to revive their business after an abortive attempt at expansion landed the firm in trouble.

Stephen and Sally Page started the business by providing a secretarial service for charities.

It soon became clear they should expand to include direct mailing and the business took off, to the extent that they had to move into bigger premises to provide room for the bulk mailing equipment.

To continue to develop the business the Pages were advised to take on an experienced sales team. This was when their troubles started. The team was expensive to run and their sales methods alienated customers.

Things spiralled out of control and matters came to a head when the bank contacted them the day before the December wages payment was due.

The Page’s accountant suggested the business could be saved by the use of a CVA and put them in touch with Steven Law, business recovery partner at Ensors chartered accountants in Ipswich.

Law said: “In three years, they turned Portland Direct around using a little known legal procedure which gave them time to repay all their creditors in full and save their business.”

While the CVA process was introduced into insolvency legislation in 1986, last year it was adopted by only 600 companies in search of survival in the UK.

Law said: “Essentially, the CVA is a formal agreement between a company and its creditors to reach a compromise over any outstanding debt.

“In the case of Portland, a monthly payment was made over three years which was sufficient to pay their creditors in full.

“In other cases, the business or assets may be sold to a third party or the procedure used as a basis for a third party to introduce funds into a more stable environment.

“It is not necessarily the case that creditors will receive all their money back. The CVA proposal will demonstrate how much the company can afford and creditors are asked to vote on the compromise being put forward.

“If more than 75 per cent in value of creditors who vote accept the proposals, the CVA will become legally binding on all creditors.”

The Government is keen that more companies are saved and next year new legislation will be introduced in order to promote this.

The legislation will include a strengthening of the CVA procedure in the hope that more underperforming companies will be encouraged to use it.

Law added: “I know that companies can be saved by using a CVA because I have been involved in a number of successful cases.

“But because the procedure is a private agreement between a company and its creditors it does not attract much publicity.”