VAT rise expected to boost number of CVAs

Mark Ranson, partner at Baker Tilly in Leeds, said the retail sector will be badly affected by the increase in VAT and believes there could be 1,000 CVAs during the next 12 months.

A CVA is a legal procedure which enables a company to create a binding agreement with its creditors and shareholders about how debt is to be repaid.

A CVA usually enables a company to continue trading and can provide a full or partial repayment for creditors, said Baker Tilly.

There were 726 CVAs recorded during 2009, which represented a 24 per cent increase on those recorded in the previous year.

Mr Ranson said: "The VAT increase from early next year is certain to have an impact on the retail sector.

"The rise will be costly to administer and re-pricing may very well hit margins as they may choose to adhere to established price points rather than pass on the full VAT rise to customers.

"It will certainly dampen demand on the high street and impact discretionary spending. This will be particularly visible in the leisure industry, the licensed trade and areas of discretionary spending."

High profile retailers which have used CVAs to restructure their businesses include Stylo plc, JJB Sport, Focus (DIY), Blacks Leisure Group plc, Miss Sixty and Flannels.