The number of struggling firms striking Company Voluntary Arrangements (CVAs) with creditors has plunged 47 per cent in the past year after tax authorities tightened the way they can reclaim debts, new data has revealed.
CVAs, in which struggling firms strike agreements with their creditors to pay off debts, have fallen to just 110 in the last 12 months, down from 206 in the previous year, according to data analysed by tax and advisory firm Mazars.
The agreements have offered a liferaft to sinking firms and helped preserve jobs. But Mazars said that a 2020 change to the law to the way that HM Revenue & Customs can recover tax debts has made CVA a more difficult option for firms and could lead to a surge in businesses filing for administration.
“It is understandable for HMRC to be a preferred creditor with a view to recover money owed to the taxpayer,” said Rebecca Dacre, Partner at Mazars. But it must be recognised that the unintended consequence of this is fewer companies entering a CVA.”
The change will mean directors will have fewer insolvency options, leading to worse returns for other creditors and “ultimately more administrations”, she added.