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. ‘
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
- 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