Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
CSFICentre for the Study ofFinancial Innovation
Companies cannot do italone: An investigation into UK
management attitudes to CompanyVoluntary Arrangements (CVAs)
Tim Mocroft(with Graham Telling andProf Roslyn Corney)
CSFI E-mail: [email protected] Web: www.csfi.org.uk
The Centre for the Study of Financial Innovation is a non-profit think-tank, established in 1993
to look at future developments in the international financial field - particularly from the point of
view of practitioners. Its goals include identifying new areas of business, flagging areas of dan-
ger and provoking a debate about key financial issues. The Centre has no ideological brief,
beyond a belief in open and efficient markets.
Trustees
Minos Zombanakis (Chairman)
Sir David Bell
David Lascelles
Sir Brian Pearse
Staff
Director - Andrew Hilton
Co-Director - David Lascelles
Manager - Fleur Hansen
Published by
Centre for the Study of Financial Innovation (CSFI)
E-mail: [email protected]
Web: www.csfi.org.uk
© CSFI 2004
This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective
licensing agreements, no reproduction of any part may take place without the written permission of the Centre.
Printed in the United Kingdom by Heron, Dawson & Sawyer.
ISBN 0-9545208-3-1
Governing Council
Sir Brian Pearse (Chairman)
Sir David Bell
Geoffrey Bell
Robert Bench
Rudi Bogni
Peter Cooke
Bill Dalton
Professor Charles Goodhart
John Heimann
Dr. Henry Kaufman
Angela Knight
Richard Lambert
John Langton
Robin Monro-Davies
Rick Murray
John Plender
David Potter
Sir Brian Williamson
Minos Zombanakis
CSFI E-mail: [email protected] Web: www.csfi.org.uk
Comments on this paper are welcome. Please email Tim Mocroft at the DTI:
or Stephen Parcej at the Insolvency Service:
C S F I
Preface
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 1
NUMBER SIXTY-SIX JULY 2004
Companies cannot do it alone:UK management attitudes to Company Voluntary
Arrangments (CVAs)
By Tim Mocroft (with Graham Telling and Prof Roslyn Corney)
Encouraging enterprise is obviously vital for the UK’s future wealth and prosperity. However, what happens if a company
hits problems that are serious but not terminal? And how can it be given the breathing space necessary to come through
hard times?
There is already on the books a partial answer – the Company Voluntary Arrangements (CVA) regime. But relatively few
UK companies currently make use of it – or even know much about it. Tim Mocroft, a businessman with close links with the
DTI, has undertaken a number of detailed interviews with companies who have gone down the CVA route to ascertain
why.
The CVA regime was introduced as long ago as 1986, to give the UK business community – particularly smaller firms
- the same sort of institutional rescue mechanism as exists in the US (under Chapter 11 of the bankruptcy code) and in
many other countries as well. The possibility of reorganising a company and its debts at the same time as it continues to
operate is, clearly, an attractive one, and it is hard to see why so many businessmen are unaware of the CVA route –
indeed, are still unaware that there is any realistic alternative to “going bust” if business conditions deteriorate suddenly.
That is the problem. The CVA route is there; the consensus is that “it does what it says on the tin”. But awareness is low,
and take-up (though it has improved) is disappointing.
So, what will make CVAs work better? To give at least an indicative answer to that question, Tim put together a multi-
disciplinary team – including an academic psychologist – to carry out a series of structured interviews in a completely
independent environment. Because this is not formally a DTI report, rather a report by a team assembled by Tim, it
seems more appropriate that it should be published independently – and we are therefore, delighted to bring the work done
by Tim Mocroft and his team to a wider audience.
Andrew Hilton
Director, CSFI
C S F I
2 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 3
Summary
This report looks at the insolvency process in the UK, with a particular focus on Company
Voluntary Arrangements (CVAs), from the perspective of company management, to determine
if managers’ perceptions or knowledge are a barrier to rehabilitating companies (particularly
smaller companies) that face financial difficulties.
The main input has been detailed interviews with management of companies that
implemented a CVA in the period from January to October 2002, coupled with interviews with
insolvency practitioners (IPs). These interviews concentrated on the problems experienced
by the company’s management to determine if there were any common threads; it did not
seek to determine if it was appropriate that a CVA should have been implemented, or if a
better alternative could have been sought.
The interviews revealed a number of issues that, if true of the business community as a
whole, will have an impact on how likely it is that company management would seek a CVA –
and on its ultimate success. The key issues are:
- lack of awareness and understanding of the CVA process in general and
what it can achieve;
- ignorance about the dynamics of the CVA process – for example, costs, its
success rate, conditions for success, the role of the IP and the practical
difficulties that will be encountered (especially with regard to staff,
customers and suppliers);
- lack of independent sources of help and information for management;
- an inability to match the experience of the IP to the particular company and
its circumstances, and the lack of ongoing support from IPs; and
- the fact that the majority of companies who use the CVA process are small
(turnover below £3 million) – and thus have little spare capacity or in-
house expertise to cope with the process.
It had been hoped that we would be able to estimate the impact on UK GDP (or some other
broad economic measure) of the CVA regime, to determine how much may be gained by
increased use. However, there are so few published statistics that it is impossible to
determine much more than the number of companies that have implemented the process. A
review of academic research has also revealed only one survey among IPs (Pandit 2000)
Key
issues . . .
C S F I
4 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
which seeks to establish some characteristics of CVAs. This lack of statistics makes it
difficult to gauge what effect changes to legislation or other initiatives have had on the
dynamics of CVAs, or on company rescues in general.
Nevertheless, we can say with some confidence that, for the CVA process to become firmly
established as a method of company rescue and for its potential to be fully exploited, several
conditions need to be met:
- the CVA process must be publicised much more widely;
- company managements must be made more aware of their options for rescue; and
- more (and better) independent help/advice must be available to company
managements.
Why did we undertake the project?
Entrepreneurship is based on a willingness to take risk – which means that, even with solid
preparation and a fair wind, some entrepreneurial ventures (and some entrepreneurs) will fail.
That is inherent in the very idea of entrepreneurialism – and, since entrepreneurs tend to be
innovators and since innovation is a good thing and much to be encouraged, it is highly
desirable to ensure that entrepreneurs are not crippled by extreme caution as a result of the
cost of the occasional (and inevitable) business failure.
That was broadly the rationale behind the CVA regime which was first introduced in 1986 –
and that, it was hoped, would revolutionise the insolvency process in the UK and produce a
genuine “rescue culture”.
It hasn’t really happened. The CVA regime has made inroads, and it has strong support from
industry, the insolvency profession and the Department of Trade and Industry. But take-up is
still rather disappointing. That is puzzling – and it is the reason that the DTI’s Business
Finance and Investment Unit and the Innovation Group have supported this work, along with
the Insolvency Service. The conclusions are those of the authors – not those of the DTI or
the Insolvency Service. But the Insolvency Service, in particular, would welcome comment
on both the problems we have identified and the proposed solutions. As part of the
evaluation of the provisions of the Insolvency Act 2000, the Insolvency Service is currently
reviewing the effectiveness of the moratorium procedure for CVAs in aiding companies in
financial difficulty. The evaluation will look at the periods both before and after
introduction to enable a comparison to be made. Any comments on this should be made to
Conclusions . . .
We need to
support
entrepreneurs . . .
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 5
Main report: The (halting)emergence of CVAs as part ofthe UK rescue culture
In the UK, creditors have traditionally enjoyed a high level of protection under insolvency
law. The two principal approaches to companies in financial difficulty have tended to be
administrative receivership or liquidation. Both of these remedies involve the replacement of
company management by an external official with the power to direct the company’s affairs.
In administrative receivership, the principal objective is to recover funds for the secured
creditors; in a liquidation, it is to repay creditors according to their status. In many instances,
either of these approaches will lead to the closure of the business or its sale piecemeal – with
the consequent loss of jobs, intangible assets and potential economic benefit to the
economy. Both approaches are focused on salvaging value from a company’s wreckage,
rather than on either preventing the accident from occurring or rehabilitating the company.
The UK is somewhat unusual in this. Several other countries have introduced legislation
more geared towards company rescue – for example, the US through Chapter 11 provisions,
which allow management to attempt a financial restructuring without the risk of creditors
bringing about the company’s collapse for their own ends.
This problem has been recognized for a long time. In 1982, for instance, the Cork Committee
recommended, wherever possible, the continuation and/or disposal of businesses as a going
concern, and the preservation of jobs for at least some employees. It concluded that
alternatives were needed to the Scheme of Arrangement procedure under the Companies Act,
which was formal, complex and expensive. It therefore recommended two alternatives,
Administration and CVA – both of which were introduced in the Insolvency Act of 1986. So
(it was hoped) began the birth of a new “rescue culture” for companies in financial difficulties
in the UK.
CVAs are a fundamental departure from previous UK insolvency law. They are a cheap and
(relatively) easy mechanism designed to allow company managements, who will probably
have a strong desire to ensure the survival of their businesses, to drive the rescue process.
Given the self-interest of management, it would seem logical to assume that this form of
company rescue would be popular – especially since the other new mechanism recently
introduced, namely Administration, involves the removal of management and is more costly
and time-consuming. That, however, does not seem to have been the case – which asks the
question: Why?
The difference between the traditional approach and a CVA is important. Prompt action, taken
early, can have a significant impact on a company’s survival as a commercial enterprise.
Company management will invariably be closest to the problems and, empowered by the CVA
The UK
tradition . . .
The need is
recognised
C S F I
6 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
provisions, should be in a position to take that action. However, even though CVAs are
generally cheaper and easier to implement and ought to be in management’s self-interest,
take-up has only been moderate at best.
Partly prompted by the low take-up of the CVA mechanism, a review was conducted in 1999
and 2000 by the Insolvency Service and HM Treasury which examined the effectiveness of
UK insolvency law at promoting a rescue culture and assisting companies to resolve
financial difficulties. A number of changes resulted from this, and were introduced in the
Insolvency Act 2000 and the Enterprise Act 2002.
These changes were aimed at streamlining both Administration and CVA processes, and may
in due course prompt a better take-up.
This report seeks to add to the debate on these issues by examining the experience of
company managers, who have recently implemented a CVA, to determine if there are real or
perceived barriers that inhibit them from taking full advantage of this rescue mechanism. The
main conclusions are based on a number of detailed interviews with companies of different
sizes and different sectors from around the country that implemented a CVA in the period
January to October 2002.
These interviews did not approach the issue from a judgmental standpoint; nor was there
any attempt to determine if the best course of action had been adopted. The primary aim was
to understand the process from the manager’s perspective and to determine if there were
common factors which might be a barrier to the uptake of CVAs. The interviews were
informal, and the interviewers introduced themselves as businessmen involved in running
small businesses who had been seconded to the DTI (which was indeed the case). This
approach was designed to reduce the temptation to ‘spin’ the story behind the CVA and to
get a more candid appraisal of the process. Most of the interviewees were open and
extremely frank about their own failings, and about the experience they had gone through,
and we believe that the conclusions generated from the interviews are potentially very
important for advancing entrepreneurialism in this country.
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 7
CVAs: Background andstatistics
A CVA is a collective procedure that allows management to propose a scheme to a
company’s creditors to compound or repay its debts to alleviate cash flow problems and to
give the company time to recover from its financial difficulty.
Although management may propose the arrangement, an IP is required to act as both a
nominee of the arrangement and a supervisor of the scheme once accepted by the creditors.
The IP will, as nominee, make a report to court setting out the proposed arrangement and the
company’s state of affairs; as supervisor, he will administer the collection of monies from the
company, to be distributed to creditors under the arrangement. Once accepted, the
arrangements are binding on all parties.
Concerns have arisen that the CVA process is difficult to implement because there is no
mechanism to protect against action by individual creditors prior to an arrangement being
agreed. Indeed, many companies have been put into Administration first in order to gain
protection from creditors before proceeding with a CVA. The Insolvency Act 2000 has now
introduced a procedure for granting a moratorium to companies to give them the necessary
breathing space while trying to arrange a CVA. However, it is still a requirement that a
nominee (an IP) has agreed to act, and that will involve the nominee making certain
investigations and incurring costs. This may be a hurdle to the use of moratorium
arrangements.
Since CVAs were introduced in 1986, the take-up has been modest – and there is evidence
that it has now reached a peak and may plateau. The changes mentioned in respect of a
moratorium on creditors may well energise take-up, but there is a long way to go before CVAs
become a main plank of the UK rescue culture.
CVAs in pictures . . .
To understand the role that CVAs currently play, it is useful to look at the totality of company
rescues and liquidations in the UK – which is what the following charts try to do.
A couple of points first:
- “Company rescues” include Administration and CVAs only; administrative
C S F I
8 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
receivership is included in the category of company liquidations since its primary
goal is the sale of assets to raise cash to pay secured lenders.
- The charts are based on publicly-available data (in the UK, the ONS; in the US, the
Department of Justice). Unfortunately, data on the size of businesses affected and
on outcomes for stakeholders are virtually non-existent.
Chart 1 – Company liquidations compared with rescues
Chart 1 shows the total number of companies who have entered into a form of liquidation (CL
on chart) or one of the two rescue mechanisms (CR on chart), namely Administration or CVA.
The chart covers the period since the inception of Administration and CVAs and shows the
proportion that CL and CR procedures represent of insolvency/rescue procedures as a
whole. The number of company rescues has grown steadily – though it is still much lower
than in the US.
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 9
Chart 2 – Company rescues by category
Chart 2 is an analysis of each category of company rescue by number and the proportion of
total insolvency/rescue procedures it represents. Two caveats:
- First, small companies represent by far the largest share of CVAs – thus, although
the number of companies entering CVAs has increased, their economic value may
still be small in comparison with Administration.
- Second, many companies that enter a CVA, especially larger ones, have already been
in Administration to gain protection from their creditors. There is, therefore, an
element of double-counting since they will appear in both categories.
The problem of double-counting is inherent in all the insolvency/rescue statistics since it is
possible that companies have moved from one procedure to another as their circumstances
play out.
C S F I
10 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web : www.csfi.org.uk
Chart 3 – Company Administration vs. CVAs
Whilst Administration and CVAs, as a group, appear to gaining ground, the upward trend for
CVAs, as shown by the five year moving average below, seems to be slowing. This is in
contrast to Administration, which shows a strong upward trend in the number of cases.
However, this acceleration in Administration may just reflect its increasing use as a
protection mechanism prior to a CVA being proposed. The increase may not, therefore, be an
indication of more rescue activity but merely a change in practice by IPs.
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 11
Chart 4 – Company rescues as a percentage of total insolvency/rescue procedures in
the US and UK
Chart 4 compares Chapter 11 in the US and UK rescues as a proportion of total insolvency/
rescue procedures in each country. This shows that, in the US, company rescues
consistently form a much higher proportion of the total than in the UK. In the US, company
rescue fluctuated between 18.9% and 33.5% over the 1989-99 period, averaging 27.6%.
The mechanism for a CVA in the UK, when it is instigated by a company’s management, is
similar to Chapter 11, although there are significant differences. For instance, in the US, in
contrast to the UK, company management may – without the assistance of an IP or the
approval of its creditors – file the necessary papers by completing an online form. Once the
papers are filed, the court will grant an automatic stay on creditor actions. It is that easy.
Furthermore, during the Chapter 11 period, the courts may also force suppliers to continue,
and prevent the cancellation of key contracts. Thus, not only is the company protected from
creditor action, it is also able to continue business in a near normal fashion – though there
are onerous legal responsibilities placed on directors. These differences, which leave
management firmly in the driving seat, undoubtedly contribute to the fact that business
rescue in the US has consistently been a significantly higher proportion of total insolvency
procedures than in the UK.
C S F I
12 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
The dearth of statistics . . .
There are very few statistics on the use of CVAs – and we feel that we have made use of all
that are publicly available. Thus, we have no more than a broad picture of what is happening.
For instance, without more detailed data, it is not possible to analyse the use of CVAs by
company, split by industry sector or size over time. Equally, the basic dynamics of the CVA
process – such as its cost, the average time scale, the success rate, the amounts realised by
creditors, even the track record of IPs – cannot be analysed. Most important, it is not
possible to assess the economic impact of CVAs.
Without reliable statistics, it is difficult to understand how cost-effective policy in this area
is. Nor is it possible to assess the reaction of the business and professional communities to
the various changes in legislation that have taken place. The expression “flying blind” might
be appropriate.
Lack of awareness . . .
From the company interviews that we undertook, it is apparent that there is a general lack of
awareness among company management of the various forms of insolvency procedure and
what might be expected from them. Specifically, most businessmen we talked to were unaware
of what a CVA is or how it may assist them. The only option that appears available to most
management is to “go bust”.
This perceived lack of real options increases the pressure on faltering managements – and
may even encourage them to behave recklessly and not seek help on the basis that there is
no alternative and so “it is better to die trying”. This lack of awareness must have a
significant impact on the success of CVAs as a company rescue mechanism. Company
managements need to be aware of the alternatives in the event of financial difficulty – and
broadly how they work. In a number of the interviews we conducted, it appeared that
companies had waited too long before taking action – and many insolvency practitioners will
confirm that this is a significant problem. This must be a function of the poor levels of
awareness.
Poor awareness has other implications. Even after the company’s managers have
implemented a CVA, they still have to manage the business, but now in very different
circumstances. There are many practical issues that have to be dealt with for which there is
no body of independent advice that can be easily obtained.
We need
better data
Businessmen
don’t know
their options
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 13
One such problem is the relationship with suppliers and customers. Since many businessmen
have little knowledge of CVAs, it may be that many customers of and suppliers to those
businesses will also have little knowledge. In nearly all interviews we conducted with
directors of companies that had been in a CVA, reference was made to ignorance and
suspicion in the minds of suppliers or customers that caused significant problems. If this is
the case where companies have successfully implemented a CVA, it raises the question of
how many companies have been thwarted in efforts to implement a CVA by the ignorance or
prejudice of suppliers or customers.
This lack of awareness is exacerbated by the lack of published data, which would help to
draw attention to what all the parties might expect from a CVA. For instance, interviewees
often asked us what proportion of CVAs succeed. This is a natural (and obvious) question to
ask – and if the statistics were available and if the success rate were high, businessmen
would approach CVAs with more confidence.
Poor awareness is not restricted to company management. In conversation with one IP, it
emerged that he did not realise that most companies went into a CVA without proceeding
through an Administration first, principally because of cost. Without reliable statistics, even
the IP profession is apt to have false perceptions.
Role of the insolvency practitioner
The structure of CVAs requires the active intervention of an IP to act as a nominee for the
proposal and to supervise the process once agreed. In practice, it is usually the case that the
IP will also act as an advisor to management when drawing up the proposal.
This close intervention by an experienced professional is appropriate because of the
inexperience of management and the need for dispassionate decisions. However, many
companies interviewed said they received little ongoing support from their CVA supervisor;
some claimed they did not even receive a regular statement of monies paid to creditors. If IPs
are to play a full role, they must be willing to share their experience and proffer advice with
the practicalities of the process. They must be accessible and proactive.
Because company management is generally ignorant of the CVA process, it is not in a
position to press IPs for a better service. Nor is it in a position to negotiate appropriate fees,
since the statistical information about costs is simply not available.
IPs must be
closely
involved
C S F I
14 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
But there is another problem as well. Because managers are all too often ignorant, they are
also vulnerable – and they are quite likely to suspect that a “proactive” IP, who pushes his
services on them, is exploiting their weakness. That is unlikely to be the case, but the
absence of information on the entire CVA process makes it difficult for company managers to
be sure they are doing the right thing.
Clearly, most managements will go through this process only once – and thus it is not
surprising that they are unaware of their options. This seems an obvious disadvantage to
both management and IPs, and it must undermine the CVA process. There is no doubt that
IPs are needed – but managers must be in a position to know that they are receiving a good
service from them at a fair price. The fact is that, in most cases, managers are uninformed
buyers in a highly pressurised situation where time is not on their side; this is an issue that
needs to be tackled.
A fundamental part of the CVA process must be an analysis of what brought the company
down and production of a plan to correct the problem. Without this, the chances of the CVA
being successful are inevitably slim.
Unfortunately, many of our interviews left the impression that the underlying causes of a
company’s problems had not been addressed. Moreover, there was often no follow-up by the
IP to check that any changes in behaviour or processes that had been agreed had been
implemented. In some cases, the business seemed so flawed it was surprising that a CVA (or
any other form of rescue) had even been proposed. This raises questions about the
motivation of IPs and their determination to make the process work.
A number of managers that we interviewed complained at the demand for up-front fees by
advisors and IPs, especially at a time when the company is financially stretched. This
apparent lack of connection between fees charged and outcome prompted considerable
bitterness. The general feeling seemed to be that it would be far better if IPs had an incentive
to make things work: “ Without a financial stake in the success of the CVA what have IPs got
to lose?”
There is, of course, another point of view. It is true, for instance, that IPs and advisors incur
most of their costs in the early days of a CVA, and there is always the risk that a CVA may not
proceed even when it has been proposed. This makes it difficult for IPs to accept deferred fee
arrangements. Furthermore, IPs are not in charge of the business on a day-to-day basis, and
thus cannot influence events directly. Against that, however, a number of IPs interviewed did
confirm that they did, on occasion, agree to spread their costs. This area of fees is a difficult
one because of the conflicting interests of the different parties. It is, however, an issue that
came out on many occasions during interviews, and is obviously perceived of as a very
serious problem.
The issue of
IP fees
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 15
Lack of independent support/advice
All companies interviewed were asked where the initial suggestion had come from for a CVA.
In many cases, it had arisen as a consequence of an unsolicited mail shot to the company
following a County Court Judgment. In effect, managers were unsure what their next move
should be after the CCJ and were seduced by the offer of help from a consultant. None of the
companies interviewed got help from Business Link or any other Government agency, and
only a few were helped by their own accountants or bank.
In the circumstances of an impending business failure or a CCJ, managements are under
enormous pressure. This inhibits their ability to think rationally, and to view their options
dispassionately. As noted, this problem is compounded by the absence of independent
support.
Such support – if it were available – would provide a valuable first step for management to
identify a way forward without necessarily revealing company problems to third parties.
Some form of simple, independent, confidential advice would help management understand
its options, make it an informed buyer of consultancy services (if they are required) and
encourage earlier action. This support needs to be available to companies throughout the
CVA process to alleviate concerns and improve understanding.
We need much better data . . .
It is our opinion that, there should be an extensive nationwide survey to establish the broad
characteristics of current CVA activity. This should cover:
- CVAs by size, geographical location and industry sector;
- creditors by class, and by the percentage settlement that they accepted;
- the typical duration of the CVA process;
- the success rate of CVAs in recent years;
Need for
independent
support
We recommend
a nationwide
survey . . .
C S F I
16 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
- the reaction of lenders and other secured creditors to the CVA process; and
- the reasons why CVAs are believed to succeed or fail.
The publication of this survey would be an excellent way to boost awareness. It would also
be an important step towards creation of a national database on CVA activity, which could be
updated and published on an annual basis. If such a database existed, it would be possible:
- to determine the macroeconomic impact of CVAs (we believe that they are strongly
positive, but lack the data to back up this assertion); and
- to understand how actual and proposed changes in legislation affect the insolvency
process.
Regular publication of accurate statistics would lead to useful academic analysis and would
contribute to the continuing development of practice and policy in this area. The publicity
generated would help with the problem of low awareness in the business community, and
would raise the profile and understanding of CVAs.
Such a database is quite feasible. Indeed, the information for it could be extracted from
annual returns compiled by IPs as part of their licensing requirements. This proposition
was put to IPs interviewed by us and did not meet much opposition.
The need to promote (and explain) CVAs...
An extensive marketing campaign aimed at company managements and their advisors should
be undertaken.
This should aim to raise awareness of the options for company rescue, and it should be
supported by a more targeted campaign designed to signpost sources of help. The material
could even be included with the documents that are sent out in the incorporation process
and to new directors of companies.
. . . and a
marketing
campaign
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 17
We also believe that companies at the greatest risk should be targeted in a high-profile way.
For instance, companies who file company accounts showing income statement losses
could be sent literature sign-posting help. Similarly, companies who fall in arrears with
VAT or Inland Revenue payments could be sent letters urging them to seek help. If this
approach is not deemed practical or politically expedient, then the support mechanism that
we are proposing below could be proactive in contacting firms that appear to be at risk –
prompted by the Inland Revenue, Customs or Companies House. This might involve
confidentiality or conflict of interest issues, but we feel they could be resolved. At the
same time, business magazines and the business pages of newspapers should be encouraged
to publish more articles about company rescue.
On top of this, it seems obvious to us that qualifications aimed specifically at directors or
professional bodies should be reviewed to ensure that they contain sufficient detail on the
insolvency process and its implications for advisors and employees.
Independent advice service for individual
companies at risk
A report commissioned by the DTI’s Small Business Service, released in February 2003 by
York Consulting, reviewed the success of the Company Rescue Scheme Pilots.
These pilots were conducted in five UK regions through a variety of providers, each with
different scheme details. In outline, each scheme provided (at a greatly reduced cost) a
review of the company’s affairs to identify its needs and refer management on to appropriate
help. The York Consulting report concluded that there is a great demand for these schemes,
and that the pilots had been a factor in saving companies. The interviewees for this report
echoed this, repeatedly calling for some form of support to be provided.
There is clearly a need for some sort of intensive support mechanism, although assessing the
cost and benefit of such intervention is difficult. This is a project that needs to be developed,
and the most successful formula should be adopted nationwide.
Make information
automatic
Company
Rescue
Scheme
C S F I
18 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
General support for companies pre and
post-CVA
In addition to some form of individual company assessment and referral service, we believe
there is also a need for a complementary general support service that can advise on common
issues that affect all companies in the rescue process. Whilst such a service would not give
detailed advice on a particular company’s circumstances, it could give general advice on a
range of issues and how they have been resolved by other companies in similar
circumstances. Thus, its role would be to help develop management thinking, catalyse action
on issues and act as a signpost to more detailed specific advice.
As an example of where this kind of help would be useful, many of the interviewees for this
report acknowledged difficulty in resolving how they should inform staff about the proposed
CVA, at what stage and in what detail. This is a good example of the kind of issue that might
be better handled by managers if they had more access to independent advice.
Early warning system
We believe that an early warning system could – and should – be developed, to encourage a
company to seek expert help when its financial indicators are moving out of normal
boundaries.
This system would probably just be a piece of software that sat alongside whatever software
the company used to record its basic financial transactions. The software would use those
records to calculate various ratios on a regular basis – and then to compare those ratios to
trends already calculated and to financial norms incorporated in the software. The software
could then flag up instances when a company may need to review its situation.
It is obviously not intended that the software would be an infallible predictor of failure. Its
purpose would simply be to make companies more conscious of financial information and to
encourage them to investigate anomalies as they arise. It is possible that such a piece of
software could be developed in partnership with banks and accountants, both of whom
would have an interest in a company’s survival.
Catching
problems
early . . .
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 19
IP matching service
During our research, we learned that many companies received only one presentation from an
IP – and there was almost always no proactive market search for the best IP in a firm’s
particular circumstances. This may work out for many; but it suggests that companies might
benefit from a matching service, that could use various indicators (such as the size of a
business or industry sector) to establish a list of qualified IPs. The service could be easily
run via a web site, possibly operated by the general support organization.
IP service obligation
Many companies we talked to complained about a lack of support from their IPs.
That said, managers generally had little knowledge of what they might expect or what they
should have asked for at the outset. Some of their dissatisfaction, therefore, reflects
ignorance about the role of the IP and the capability of IPs to provide assistance. It would be
helpful to everyone if the profession itself could put out a clear statement, aimed at the
business community, of what a CVA nominee and supervisor could and should as a minimum
do for the company – and what a company should ask the IP to provide.
R3 (the Association of Business Recovery Professionals), in conjunction with the Joint
Insolvency Committee, might be an ideal organisation to undertake this work. It could well be
combined with a guidebook aimed at answering the question, “Is a CVA right for my
company?”
We believe that an initiative like this would foster better relationships between companies
and IPs, and could have a beneficial impact on the ultimate success of CVAs. If some such
initiative is not undertaken, there is a danger that the insolvency profession will become more
distant from its clients as it becomes more specialised. This could lead to a situation where
the profession loses sight of its ability to impart knowledge that could make a measurable
improvement in the performance of a business. The production of a document setting out
what IPs could and should provide may counter this potential dislocation from the business
community.
Problems
with IPs
C S F I
20 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
How we did it … Interviews withcompanies in the midst of a CVA
The interviewees for this report were not designed to be a representative sample, and the
format was deliberately informal. We sought to pursue areas that came up in the course of
the interview, rather than adhere slavishly to a list of questions. Although this limits the
reliability of our conclusions, the similarity of the circumstances and experiences relayed
during the interviews suggests that the issues we uncovered may be widespread. All
interviews were taped, to allow Roslyn Corney, the team’s psychologist, to perform an ex-
post evaluation. We interviewed fifteen companies, all of whom were in the middle of a
CVA, spending on average one and a half hours with each interviewee.
The average term of the CVAs entered into was 39 months, the longest being 60 months and
the shortest being 12 months. As far as repayment of outstanding debts was concerned,
93% of companies agreed to pay the Crown 100% of the debt owed and 70% of companies
agreed to pay 100% of the debt owed to unsecured creditors. Thus, most of the CVAs we
looked at were merely an arrangement to reschedule payment of outstanding debts in full.
As at June 2004, a search of Companies House records revealed that 30% of the
companies interviewed had gone into liquidation.
Areas covered
The interviews with the directors and managers of companies in the process of a CVA
covered the following areas:
• a broad description of the company, including any significant changes and its
recent history;
• brief details of the interviewee and other colleagues;
• the company’s financial difficulties – in particular, how they were caused and when
they were recognised;
• progress made towards a solution;
• the impact of the company’s problems and the CVA process on the organisation;
• lessons learned; and
• ideas on how the CVA process could be improved.
Informal,
in-depth and
open-ended . . .
Headline issues
The issues that were repeatedly raised in interviews included in particular:
• the very low awareness of the potential offered by the CVA process (e.g. some
interviewees were not even aware that CVA proposals could provide for payment of
less than 100% to creditors);
• the lack of statistical information to help directors and others make an informed
judgement as to the success rates of CVAs;
• the lack of ongoing contact with or support from the CVA supervisor;
• problems with the Inland Revenue and Customs and Excise (e.g. the lack of
communication about the approval of a CVA between Revenue and Customs
collection staff, resulting in unnecessary enforcement action by Crown
departments); and
• problems with customers and suppliers, primarily because of their poor
understanding of the CVA process.
In addition, there was a general lack of awareness about the amount of the supervisor’s
fees, and how much of the funds paid to the supervisor had been, or were to be, distributed
to creditors. There was also concern expressed during one interview about the time taken
to develop the proposals and to get the CVA approved.
The types of company interviewed
Companies who were interviewed were chosen more or less at random from a list of all
companies who notified the Voluntary Arrangement Service of the Inland Revenue that they
would be entering a CVA during the period from January to October 2002. The period
chosen was deliberately recent to ensure that the recollections of the managers were fresh.
The interviews themselves were conducted in April and May 2003. The majority of
companies (60%) were small, having a turnover below £1 million. This is in line with the
findings of the report by Pandit and others which concluded that this category accounted
for 52.5% of all companies seeking rescue. The companies covered a wide spread of
activity. The broad categories were: manufacturing 32%, services 38% and construction
30%.
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 21
Awareness
is low
The principal problems
Many commentaries on insolvency ascribe most company failures to the inadequacies of
management. The impression they give is that the reasons for financial crisis are
foreseeable and avoidable – and thus ascribable to management failures. However, from our
interviews, it would appear that this is an over-simplification. Whilst, in many cases, mis-
management certainly contributed to the problem, a single major event often caused the
crisis. The general impression we got was that companies were adequately, but not
inspirationally, run for the level of activity they were engaged in – but that they suddenly
found themselves in the midst of some crisis that they had neither the management skill
nor the financial resources to resolve. The most common such crises were:
• over-reliance on a single large contract (38%);
• a sudden market change/collapse (30%); and
• natural disasters (15%).
Specific cases which brought a company down that we looked at included:
• a large bad debt;
• a fire at the company’s premises;
• a sudden contraction in demand for the entire industry’s products;
• an unforeseen delay in commencing a major project, with consequential costs for
retaining employees;
• taking on too large a contract early in a company’s life – which overstretched its
resources;
• the general downturn in economic activity following 9/11; and
• problems related to the UK foot-and-mouth epidemic.
C S F I
22 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
Exogenous
factors
The companies’ experience
In general, companies that we interviewed characterised the CVA experience as traumatic
and debilitating, with many admitting that the relief experienced when the CVA was agreed
was short-lived. The immediate cash pressure of the pre-CVA period was replaced by a
prolonged period of performance pressure, while the CVA was worked through – with the
inevitable feeling that one more hiccup could spell the end of the company. Given that the
majority of CVAs lasted for over 12 months, the pressure on management was considerable
– and may ultimately have damaged the companies’ ability to survive. In our view, this
demonstrates the need for managers to have access to some form of support, be it from
CVA supervisors or other bodies, to help navigate this tricky period and leave the company
in reasonable shape to carry on.
Many of those interviewed commented on the lack of ongoing support and guidance
available once the CVA was approved. In some cases, the role and duties of the supervisor
were misunderstood. Some companies were unclear on what, if anything, they should tell
their employees about the CVA, and others were unprepared for the reaction of customers
and suppliers.
What do companies want?
Many companies asked for information and support to be more available – but were vague
as to how it might be provided. However, all the interviews pointed to this as a crucial
issue. Some companies made specific suggestions, which merit investigation. In particular:
• an “IP matching” service to marry the individual IP’s experience with the company
in terms of background, circumstances and industry sector;
• a service that would provide advice for companies, delivered by businessmen from
a business perspective, rather than professional legal or accounting advice;
• a guide from the DTI on how to manage business in a downturn; and
• some mechanism to link the fees paid to IPs (both nominee and supervisor) with
the success of the CVA, to provide them with an incentive to remain supportive.
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 23
“traumatic and
debilitating”
Interviews with professional advisers…
A small number of interviews were conducted with IPs, (who were told about the interviews
with companies in CVA), to determine their reactions to the four main issues raised in
those interviews:
- Awareness: In general, IPs who were interviewed agreed that low awareness is a
problem, and that it is more acute in smaller companies. Solving the problem is,
however, difficult, but, it could pay dividends in terms of better understanding on
the part of creditors to a CVA. There was a sense that part of the problem lies in
the fact that insolvency has become a profession in its own right – and thus, to
some extent, a closed world to other professionals, even those with relevant
expertise such as accountants and bankers. Some way has to be found to re-
establish a working relationship with other professionals that could offer
appropriate solutions when required by companies; one suggestion was that
Business Links would play a role. Another was that the Crown could act as a
catalyst to inform companies of their options at the appropriate time, triggered by
PAYE or VAT payment difficulties. Note, however, that concerns were also
expressed that the Crown may become more aggressive with late payers as a result
of the loss of Crown preference, which may not be compatible with an “early
warning” role.
- The absence of statistics: We believe it would be useful to try to build up a data
base. In general, IPs whom we interviewed agreed that the lack of statistics is a
problem, and that the collection and analysis of accurate data would improve
awareness of CVAs and their benefits – both to company managers (as an option
worth considering) and creditors. There were various suggestions as to how
statistics could be collected, from requiring CVAs to be advertised in the London
Gazette, to the collection of data by the IPs’ authorising bodies as part of their
licensing procedures.
- Support from IPs: The IPs interviewed generally agreed with our company
respondents that companies should be able to expect ongoing support from their
supervisors – but they also emphasised that management needs to be proactive in
seeking help. It was suggested that directors often reject help to save costs – or
because they mistakenly feel they can cope. One idea was for a voluntary code to
set out the standard of assistance that companies could expect. One of the IPs
interviewed had already arranged for the companies he supervises to prepare a
monthly key indicators form, as a method of monitoring performance and so that
he can intervene when indicators appear to be out of line.
Same
approach
with IPs . . .
C S F I
24 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 25
Some IPs felt that the insolvency profession itself lacks the training to deal with
turnaround situations. Thus, one reason for the lack of support may be the
realisation on the part of IPs of their own limitations – particularly the fact that IP
training concentrates on the legal requirements of insolvency, rather than the
practicalities of CVA implementation. The cost structure of IP firms was also
cited as a barrier, in that individuals with sufficient experience to provide practical
support are too expensive.
- The burden of up-front fees: Up-front fees are a difficult issue – though most
IPs recognise that they are a burden on the company. However, it is argued, the
costs and workload of the IP are heavily front-loaded, although there may be ways
to ameliorate the impact. Some IPs acknowledged that, on occasions, the cost of
early work can be spread over a period – but it is obviously not common. It was
also pointed out that if a company struggles to pay professional fees, then it may
not be in a position to be rescued; under those circumstances, it would be unfair to
ask IPs to defer fees if there were no similar sacrifices made by the company’s
directors.
A psychologist’s impressions:
Barriers to seeking help early
As has been found in other areas, it is difficult for most individuals to recognise that they need external help – or to
admit that they are having problems or have failed in some way (Aldwin, 2000). There is the shame and stigma of
being closely involved with something that is failing; aspirations and pride also come into play.
Unwillingness to seek help early may be even more common in the case of business failure. The personal
characteristics that make a good entrepreneur are not the same as those that are needed when things start to go wrong.
Entrepreneurs have to be optimistic and willing to take a certain amount of risk; they find it difficult to accept defeat or to
admit to failure (Jenkins et al, 1994).
This is a substantial barrier to seeking help at the right time. Individuals either deny there is a problem or believe their
difficulties are only temporary and that tomorrow will bring a solution. Many of the directors of businesses in this
investigation sought help too late. Putting things right might have been easier if a thorough consideration of their situation
had been made much earlier.
Several factors affect the willingness (or otherwise) to seek help. Close emotional involvement, for instance, will make
it more difficult to seek outside help or admit to failure (Hirschhorn, 1990) – a problem when the business is family-run
or was started by the current directors/owners. It is also more difficult when the current problems are caused by poor
internal decision-making, leading to guilt and shame, rather than by an outside factor over which managers had no
control. It is also easier to admit to problems if other businesses are suffering because of a common factor or a general
economic downturn.
Another barrier to seeking help is the lack of prior knowledge of the CVA process. Most interviewees had not even
heard of a CVA before asking for help – and therefore tended to feel that the only option for a failing company was
receivership or some form of insolvency. Moreover, many interviewees still seemed to lack basic knowledge about
CVAs during the interview – even though they were actually going through the process. Many, for example, were not
aware that creditors did not always have to be paid back in full.
It is important that there is greater awareness of all aspects of the CVA process, so that individuals know there are
alternative routes that they can take, and that dissolution of the company is not the only option. There may be several
points at which an official leaflet would be useful, but general awareness among the business population would also be
valuable. People need to be aware of their options before their businesses reach a vulnerable stage.
It is also important that senior management has prior, independent knowledge of the different options, so that it is not
totally dependent on the first advisor who walks in the door. Advisors may have their own prejudices and preferences,
and they can unduly influence the decisions that management takes – not always in the company’s best interest.
Some of the interviewees indicated the value of local business clubs as a source of support during difficult times, and
also for providing information from independent sources with no vested interests. That is worth considering.
A
behavioural
approach
C S F I
26 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
The impact of stress on rational thinking . . .
The interviews highlighted the huge personal stress that most individuals were under. The amount of stress was found
to vary – and is likely to be greater for those with considerable emotional involvement in the company and for those
who feel a personal responsibility for the company’s fortunes (Cooper et al, 2001). The support received from others
was also important. Stress levels could be reduced if support was received from others – including family members,
fellow company directors or senior management, the workforce and the local business community (Aldwin, 2000).
While stress has an impact on health and on one’s personal life, it also has a major impact on an individual’s ability to
think and make decisions rationally (Hammond, 2000). Many of the decisions made by the interviewees had been
made in haste and under stressful conditions, and would not have been made if they had had time to think carefully
and calmly about what best to do.
In addition, an individual under stress is much more likely to focus on minor day-to-day decisions (which are relatively
easy), than on major strategic issues. This was seen in many of the interviews and is likely to have a negative impact
on long term corporate survival (Hammond, 2000).
The combination of a delay in seeking help and high stress is also likely to have an impact on the option taken when a
business is in difficulty. An individual under stress who leaves acting until too late is more likely to feel that he cannot
cope any longer and wants a quick exit strategy (Lee & Ashforth, 1990). Such individuals are, therefore, more likely to
opt for liquidation or for an outcome where running of the company is taken away. It may be easier at an earlier stage
(when stress has not yet become excessive or chronic) for the individual to work things out for the business.
It is important to emphasise that the majority of interviewees perceived the CVA process very positively. Any
publicity should feature this, so that it can be seen as a positive, productive option.
In many cases, deciding on a CVA temporarily relieved much of the stress felt by senior management. However, it
often took some time to return to a “normal” state. In many businesses, the lack of action in the days (even weeks)
following implementation of a CVA led to missed opportunities in terms of decision-making and strategy. It is important
to ensure that the breathing-space given by a CVA is used as soon as possible to work out a future strategy – and not
simply to carry on as before.
There was considerable evidence of internal conflict among senior management in many of the companies examined
(and between management and staff in others). In the case of family members who were senior managers or directors,
this was often related to the playing out of learned family roles (which were often maladaptive) both inside and
outside work (Hirschhorn, 1990). This led to problems with strategy and decision making. When there is more
than one director or senior manager, this can often lead to diffusion of responsibility (Latane & Nida, 1981).
Senior managers may feel responsible for their own patch, but no one will assume responsibility for the
organisation as a whole.
C S F I
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 27
What to tell the workforce . . .
Interviewees were often in a dilemma over how much to tell the workforce, and there were mixed messages on this
from the interviews.
There does not seem to be a right or wrong way. How much to involve and inform staff members and how much to
tell them are likely to be dependent on a number of factors such as the size of business, staff loyalty and commitment.
However, in all cases, it is important to maintain staff morale and loyalty so that productivity and sales do not suffer
(Shackleton, 1995).
In most cases, all the staff need to know is what is happening, and be given the opportunity to ask questions
(otherwise they are likely to find out from others). Where there is considerable staff loyalty and commitment, there is
perhaps less need to inform the staff of every detail. In these situations, the staff will trust senior managers and know
that they are working for the benefit of the business. From the interview, we noted one company with these
characteristics, which learnt that it is best not to give out too much detail; more detail apparently increased the staff’s
levels of stress and anxiety, and reduced productivity. What managers need is to put forward a positive, upbeat
message of working together (Zander, 1982).
In companies where there is less trust and commitment, it may be more important to involve staff more closely with
the issues raised. This may increase morale and the sense of working together. It can also be instrumental in
developing trust.
Roslyn Corney
C S F I
28 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
C S F I
Bibliography
1 Corporate Rescue: Empirical evidence on company voluntary arrangements and small firms
NR Pandit, GAS Cook, D Milman and FC Chitterden.
2 Aldwin, C (2000) Stress, coping and development. New York: The Guilford Press.
3 Cooper, C, Dewe, P, Driscoll, M Organisational stress: a review and critique of theory,
research and applications. London: Sage.
4 Hammond, K (2000) Judgements under stress. Oxford: OUP.
5 Hirschhorn,L (1990) The workplace within: psychodynamics of organisational life. MIT:
MIT Press.
6 Latane, B & Nida, S (1981) Group size and helping. Psychological Bulletin, 89, 308-324.
7 Lee, R & Ashforth, B (1990) On the meaning of Maslach’s three dimensions of burnout,
Journal of Applied Psychology, 743-747.
8 Jenkins, R, Cox, C & Cooper, C (1994) Business elites: The Psychology of Entrepreneurs
and Intraprenuers. London: Routledge.
9 Shackleton, V (1995) Business leadership. London: Routledge.
CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk 29
C S F I
About the authors . . .
The lead author of this report is Tim Mocroft, who is currently on secondment to the DTI’s
Business Finance and Investment Unit. He is a qualified accountant who was group finance
director of National Express plc from initial privatization to flotation on the LSE. He can be
contacted by e-mail: [email protected], or phone (07703 560082).
Tim was assisted by Graham Telling from the DTI’s Innovation group, who played a key role
in conducting the interviews that form the core of this report. He was also helped by Roslyn
Corney, professor of psychology at the University of Greenwich, who offered a
psychologist’s insights into the dynamics of the CVA process.
30 CSFI 5 DERBY STREET, LONDON W1J 7AB Tel: 020-7493 0173 Fax: 020-7493 0190 E-mail: [email protected] Web: www.csfi.org.uk
������������� �
�� ����������� ���������� ��� �������������� ������ ������������������������� �� ���������� ���������������� �������� ��� ���� ������ ���� �� �� ���!"��#� �����$��%���&������"��!�'�� �%(��� )**+
�� �� ������� ���� �� � ������� ��������������� �����%� � �� ��� �� �� ����������� �� ��� ���$ �)���)�%�����%�� � ����� �� �� �������� ���� � � ���� ������ �� � ���(�� ���� � � ����������� � �!"���������,�(���!�-� �)**+� ./������ �� � � � ���(�0
�� ������ ������� ��������������������� ����������� ��������%�� �� �������������� �1�������%����2�� �� ����%�� �� �3������� ������ � � �� �������� �(�� �� ��%������ �� � �3������!"��,� ���4������!�,���%(���)**+
�� ��� ����������� � ���� ��� �� ����� ��� �����������3�%��� ������ ��������� ��(������ �1������� ��� ����������������� �� ��� ����� (��� ��������56��� ���$���#7���� �!"��#��� 4����!� 8������� )**�
!� �"� #$%������������������� ��� ���������������9 ���� :������������� �!�!� ��%������(����� �)���1���� � ��%����� �� � ����(����������� ��� ����������������!"��&���������"���!�6�����)**�
&� �'( ��������� �� ������������ ������� �������� ��� ����%��� �;<� �������� ����� ���� �1�����.�������������������%����� (���� ������� ��%%������ (��$��0!�6���)**�
)� �$�����*�������������5��� ��� � ������������������������������ ��$����� ������� �����3 �1������������� ������� ��� �$��� �� ������� ��%!� 8����)**�
+� �,� -� ��������� ������ .���� ���*����������������� �����%��$� =(������ ���� � ��������� �� �1����������� ��� > ���=� =���$2�� �� ��������� �%������� ���"������������� �� �� ����(��$� ���� �� ��?����%�� �!"��7������5����!� 8��� )**�
/� �0 - �����������1,��*��� ������������������� ��� ��������(������ � ���� ���%�� � ������ �1������������ ���� �� ���%� �� �%���%�� =������ ���� ���@�� �� ��� ������(�����!"�� 8��?���������=6����� !�/� �(��� )**�
�2� �$�����*����������##���A�����������;<�(��$������������������������ �� ����������������������� �1�������� ��� � ���� ��%� ��� �� �(��$����������!-� �%(��� )**�
��� �#$%345�# ���� ��6 ���5��� ������������������ ��� ���)**�� B"6�7'AB�#��C�! �)���)�-� �%(��� )**�
��� �7�.������ ������ ���*������������������%� �������� ���%��������� ��� �?���� ���� �������(��������� �1����� ���%�� ������� ����� ��� ��%����� ��� ���� ������� ���� ��%� �� �� �� �?���� �� �� ���!"�� B���6��$�� ���!� 8�������)**�
��� �$������ ����� ���� ������������ ������� ���� ����"��$���� ������� ����� �1��������� ������� ����%� ��������������� ��� ����������%�$����(���������� � !"��-��$�7���!�A�(������)**�
��� �,� ������� ���� ���� ����� ���5�������0��� ���������3����%�� �� �� ������ ���������� �� �! �1�����"��,� ���4������!�6�����)**�
�!� ��%'5�� ###8"� ���� � ���*�������"��$��%���(��������� �%� ���� ��� �%��� ���6��� ���� 2�� �%�� ���� ! �1�����"��6���%� 4� � !�6��� )**�
�&� �$��������� �1���� � � ������� ������ ��*�������� ����������� �����%��� ������� �%�� �)���)�(��$�������$�(�������������=������ ���!"��"�� �&�� ./��� ��� �� � � � ���(�0!� 8��� )**�
�)� �"� 4������ � ��� ������� �������A������ @������� ����������(�� � ��%�������� ��� ���7� ���� 4�����! �1���+�"��#� ���$� ��� 8��?��� !� 8��� )**�
�+� �"� '(*���������� �� �8���� ���� ������ 9��������� ����������������� ���� ������;< �)���)�(������� ����� ���� ����%� ��� �!'�� �%(��� )**�� ./��� ��� �� � � � ���(�0!
�/� �: ������������ ��� ��� �� ���������� ������������������ ��������� ����������� ��� �1���+�� �� ������������ ���(��$�!"��7������5����!�/� �(���)**�
�2� �"-�� ������ ��� ����� ���� � ��� ���� ��� ���������� ���:����������� �� ����%�;<� �������� ����� ��� �1�����(�� ��� ���� ��� �%��� ��������� ��%� ����� �� � ���� �����%��� � ��� �� ���!"��6������ 5����!�,���%(��� )**�
��� �$�����*���������� ###���5��� ������������ ��� ����� �������;<� ������� �� �������� ��������� �� �1��������$�� ��� ��� �������� ��� �%� ��!6����� )**�
��� �; ���� 8,�������� �����1"� < ������; ���� <����������������.(����(��$��0���� ������ � � �1������������ �� ��� ��� ����� ����� ���%���%�� � � �!� ������� �� �� �%�� ���!"���������,�(���!�6���)**�
��� �< ��<������ ��� � D��� �� ����%� ���;<2�� ����� ���� � ��� ���!� B%��%�� ���� 95����#��$�:! �1�����"��6������ 5����!� /� �(��� )**�
��� �4 ����� *��� ��� �� �����8 � � -� �������� �� ������� ��������� �� ��� ��� (��$ �1������� �� �� ���� E��� ��� � ������� �3������� ����� ��!� � "��-��� ������!�-� �%(��� )**�
�!� �"� 4�������22�8,��%'����� ��� ���� ������ ��������(������������ �1�������� �%��� � ������� �� &6;� ��������� �����%��� ��� �������!"��,� ��� 4������!� ,���%(��� )**�
�&� �$�����$�����5����8�//)����� �� ������� ���������������(��$��� �1�����%��� � ���� ��� � ��� ��� ��3 � ��� ��� ����� �����!� ����� )**F
�)� ���� �� ���� ��� =���� � ������� �� ������� ��%�� ��� ��� ���� � ���� ������ �1�������� ������� ��������� .�� �� ����0!� �������� �� ��� )**F� B'6��7'AB� #��C�� ��� ��������� ���� � ���!"�� ' � ���� #� ��� '�� �%(��� )**F
�+� �4��� �� �� � �*��� �*���� ���"� ��� ��� � ��������� ������� �������� ���;< �1������ ������ ��� ��� ���� �� ���� � � ���%��$� �� ���� ���� � � ���� (�� ����� ��!"��������#�%��� ���� �� �������� �!� -� �%(��� )**F
�/� �"� ������%������ $������� 5���7� �� �� 4�����2������ �%������ � (��$� � ��������� ��������� �1������� ��(�� ������!�7��� ��� ����� ���� � � �� �� ��� ����� ��G��� �������� ������ (����� ��� �� ��%�� ��������� ��� (�� ���7'AB�� �� �� &���%����� ����#��7���� ����H������ �� �� � ��� �� ���� ����� ��� �%�� (��$���� ����� ���!"��,� ��� '�����!� ,���%(��� )**F
�2� �4� ���-� � �� ��� ���� 8$���������������� ���� �� ������� �����7��� ������ � �1������%�� �%��� �� ��%����� �� ����� ������ �� � ��� (�� ��%���� ���%�(�������� ��� ��� � � ����� �� �� ���G"�� #� ���6�� �����!� A�(������ )**I
��� ��� ����4���$������$����� �� �2�2��� 5��� � ���� �� (��$���� (�� �%���� � (��$���� � � �1����������%�� �� ���� ��������� �!�6����� )**I!� ./��� ��� �� � � � ���(�0!
��� �$�����$�����5����8�//+���5��� � ����� ����������(������$�� �� ������ �%! � �1�����8��� )**I
��� �%�������� ��� �� ����4 �������� 5��� ��%���"�������'���� ����7�%%��������� ������� �� �1���������� ���%� ��� ��� ���� ��������� �� ���� ����� � �� ��%����$� �� ���(�� � � �� ������!"����������H�%���!� 8��� )**I
��� �"� ��� ������� ������� ����� �������� ���� � �����*��������5���)**I� B'6��7'AB �1��������C��������� ������ � ���� �������� ���� �� ���%�� � �������� ��� � � ��$� ����� ���%��$� �� ��8����� ���� ��� A��� &�� !� "��-���� ��6����$���!� ����� � )**I
�!� �4�* ����� 8 ������ �� ��� �� ��� �����$���� ������ ������ ��� ���� �� ��%(� ����)�B� ���� =��� ��� ���%�!� "�� ����%����6�,����!� '�� �%(��� )**I
�&� �"� #�� �� � �� � �� ������ 8�45�#���� ��������� ���������������(�� ������ �1����� ��� B� ���� � ��� ���������� � ���%���� �(� ����� ���� �������� ����������������� ����$��� �� (�!� -� �%(��� )**I
�)� �7 <��=� �>����?4�� ������* �- �7�����@<�������������������5��������� ���C�� �1��������&�����2�� ������� �������� ��� ���� � � ��� ������ ��%��� ���� �����!� A�(������ )***
�+� �<������������� 4���8, �����������������@� ���������� ��� ������������������� �1������ ���������� � ��$�� � � ���� ����� �� ��� ��� �������� ��� ����� ��� ��!� "��,�����D� ��!� ����� )***
�/� �A����B%�����8% ����� 4���>�� .��� � ������ ���1������ �1������ � ������������� �� ��������� ��� �������� ���� ��� ���&#'�7���� ��� �������� ������%���� ��� ?��� � � � �� ������� �������� �� ��� ��� ;<�� ���� ��� �� �� ��� ������ �� 7� �������%��� ���(��� ���!"�� ,� ��� 4������!� ����� )***
�2� �,���� ���� ���*� � ��������� ��������� ���� ������-� ������������ �� �1�����)***� B'6��7'AB� ���C�� ��� �������� ���� � ���!� "�� 5�%� 5������!� -� �%(��� )***
��� ����� C�� -*����8"� ���1*��� � ��� ������������ � �������=AB&5���� ��� ���� ������ �1�����(�� ���� ��������� �� &�������� (��$�J� ���� ����� ��������!� "�� ,� ��� 4������!� -� �%(��� )***
��� �#����:��8%�=�������� * � ����3����������� �������D� � ������� ���� ��E���1 �1������ �* ���� ���%'���� ��$�� ����� ���;<�����%�$�� ���(�� ��� � ���%(� ��� ����=� � ��!� -� �%(��� )***
��� �� ��� ���� �� 4�����- ����� � �� � ��4�� ���������� �<�*���1<����� <���� ���� �� �1�����"�� '��� 6������ 6�����%�� <76H!� 6����� 1���
��� �#�� �� �$�����8, ����� ���- ��#���$���� �������������(����$������� ���� �� ���(��$��� �1���������� ��� ��� B� ���� J�� 9$���� ���:!� "�� �������D� ��!� ����� 1���
�!� �$�����$�����5�����222�5���7'ABJ�� � �� ���� �������� �;<�(��$���� ������� ���(����� �1�������������� ������ ��%!� 8���� 1���
�&� ��F8$ �� ��� G���$� �9������� ���� ��$�� � ������������%������(� ����� ���,�� �����"����� �1��������� ��� 4������ ' ��$� &3������� "�� �������D� ��� ����,� ��� 4������!� ����� � 1���
�)� �$������� .����� 8�� - �� ������������������� .�������� ��������������������� ��$ �1������3��������� ��%(������ B� ���� � ���������������%%��� �� �� �� %�� !� "��5�%�6���� �����<�� ��D�����!
�+� H;����� ���� �5,H� D��� ���7� �� ������ ����������� ��!��"��,� ���4������!��6���1��) �1�����
�/� H"� 5����1" ��<��� ��� �����<� ����5��� � ���� ��������H���������� �� �1�����1��)� B'6��7'AB�&�����#��C�!� �"��"��6�7�(�!� �'�� �%(���1��)
!2� H$�� ����� ������$�� �8,������������� -���$�� ��H5��������� ��������3 ����. ����(���0 �1��������������������������� ��������"����1!� �&�� ���(���������D� ��!� �8�������1��1
!�� H$�����5�����22�8,45�#���� �������������*����H ��� �(��$������������������(�� �� � �� �1�����(����������� 1��1!� �'���������(��#������ �������7������!� �"��,� ���4������!� �A�(������1��1
!�� H5��� ����� ����� �8 �� ������� � ������� H �� ��$�� ������������� �(����� �� ���������%�� �1�������%� ����������������������� ���� �� ��!� �"��,� ���4������!� �A�(������1��1!
!�� �I��� ����" �������8��������� �������1*�� �5%������ '(���,5B�A������� ���������� �1���������� ���������3�%�������� �����(��������� .������� ���� (������0���� ��� ��������� ���=(�����'6&�!"��7�����#��$�����!� ������ 1��1
!�� �;��������,����� 8,�� ��������� ���������������� ���� �� �������� �1����������������������� ��� ����%�����%�� !� �"��<� ��� 8�%��!� � 8���1��1
!!� �4� �������� ��� � ��8%��� ��������� �9�� ��������%�� � ���(���$���� ���%������ �1���������%����� � ����7D�!� �"��5�%�8����!�/� �(���1��1!� B'"-��=*��+)��=)=�!
!&� �"� ����� ���������������� ��� ���1 ��������������� � ��� ���������������� ���� ��� ����� �1����������������� �� ������� =7#)1)�������� ='��������� �� ������ � ��%������ ���!"��' ��� �A����!� �-� �%(���1��1!� B'"-��=*��+)��=1=1 �1���������
!)� �4� �������-�������-� ��-��� ����8, �������� �>���� ��� ���������%�������� �� ��$ �1���������� � ��� ��(� �� � ��� ����� �� ��� ������� �� �� ����������� �� �� ����� ����%%���� ����!"����(�� �6��$����������'�$��!� �-� �%(���1��1!� B'"-��=*�+)��=+=�!
!+� �;��� �������� ����9"��� ���������������� ������ ����� ������������ ��� �1������������ � �����!� �"��,� ���4�����������6��$�"��� !� �-� �%(���1��1!� B'"-��=*�I+)��=�=*!
!/� �,� - � ���� ��������� ������ .����8,��� � ������ � � ���� ��� ������ ��$�� ��� �1���������"��7������5����!� �,���%(���1��1!� B'"-��=*�I+)��=�=*!
&2� �"���������������8$�������� ���������� �*������ � �������������������������������� �1��������� ������ �%�������� �����������%�������������� � �%�� ������(��%����(� ��!"��8��� ����D������!������1��+!�B'"-��=*��+)��=�=�!
&�� �$�� �7�� �8� ���� ������������� ���� ���� � � ����������� � -$�� �������� �1���������"����� ����6���!������1��+!�B'"-��=*��)��=I=)!
&�� �< ��������������9� ������������ �� 8,��� ������� � �� � ����� *������&@�22�� �1���������6���1��+!�B'"-��=*��)��=F=+!
&�� �"� ��*���F��������8�� ��-����������������� �1���������'���������(����� ���!�"��7���� ������'����!�6���1��+!�B'"-��=*���1�I=�=F!
&���$�����5�����22����� �(��$�������������������(�� ���� ���%�������1��+! �1������K��'���������(��#������ �������7������!�"��,� ���4������!�'�� �%(���1��+!��B'"-��=*���1�I=)=�!
&!� �"� ���� ���� ��� ���� ���� 85������ �������������� ���������������(�����������;'�������� ���� � �� � ��1������K�������������(��$���� ����� ������ ��������������%�(���������� ��������������� ����� �$������������������������(��������������!�"��"�(�6��$�!�8�������1���!�B'"-��=*���1�I=1=+!
��������������
�� �,�� ��������� ������(������������%� ���7'AB2������� �������$������������� �� ����)��������� �������A'���3���� �� ������� � ����$������� �� �(��$�������!"��,� ���4������!�A�(������)**I
�� ���������� ������������� ��� ���� � ������8�� ����������� �� � ������� ����)�(������ ������������ �� ���A'�������� �������������� ������ �����(���3��� ���� �������� ����� ���!�"��L�� �����-��!�6��� )**I
�� �#�� �� �� �����������*�����8 �- ���� �� ���������5 ���� �,�������������������� ����)���� ���= ������A'���� �������!�"����(�� � 4��� � ����6������ 5����!� 8����)**I
�� ���*��������� 8"� #�� �� ���� ���������� ���� � � �������� ����)������� ����� ���� ��%����$� ������������� ��� ��� B� ���� ��%�� � �%��� �� � >���� ��������2!"�� 8������ "��@�%��� ���� ,�(����� '�(�� !� 8���� )***
�������������
#�� �� �������������5 ���� �8�45�#� ���!� B�=��� ������������ ��� ����� ��2��$������ ���!�#���� �����F������� �������7� ��M�A�������� #�(������!� 5��� �)�I+=F1�F�F�A�3�� �)�I+� F����+!
�"� � --���������� �� 1������ ���(��$�(������������3��� ����������$��� � ��������� ������������ � ������������� ����������������&���������=������!�B'"-��=*��+)��=*=N!
�5�6��� �� 4���17�����>�������������������� ��� ����������%�� ���4�����2����%�� � � ����� �1������K������������������ ��!��"��,� ���4������!��8����1��+!��#�(������(�� ���7������ ������4�����
���������������������� ����������������� ���������������������������������� ��� ������� �
�������������
����� �������������
������������������������������������������� �������� ��������
�������������������������� ��������!� �
����"���!�� ������
��������� ����������������������#������ ��
������������
�����$��������%�������
�����������$��������&��%��'�������(����������� ������
(��� �!�����(%�
�� ��#�)���������*�+��$$�
���������������� ����!��������!�&�����
�������,���$�*����
,��%�� ��,���,������ ����
���� ��-���
��"�(��������������������������.��"��������!����
�����/ ��$������������ %�
������������� ��������������������*�!����
�����/ �-�0������ ������
����!����&���!����#���� �������������
&���� &����������$���������
������%� ������������� ��� ��������������#����/
�"� �&��.�"������ ���12
� ����������$���������%�� �� ����� ���� �!�$������
������������������� �������������������
���������,��!������ ����!�"��(�"!� �����
�������� ������ ������������� �����
��������#���� ����� ���������������������
����� �#�3����� �� ���������������������
%!��,�� �������������������������������������������������� 4�������
�������������&� ���!&����������������������
��!��� ����!$�������� �������
%&5����� ����������������5�� ���5����
5����������(������5����$�������������
6')��
��������������������� ����� ������������������ ���������� ��� ������������ ������������������������ �������� ������������ ������������������� �!������ ���"�������#$%��������&�� �'����������
������������������� �������������
����������������������������� !���������"������#���"� �$�%��#�&'()
�����������%*%�"�%��%�+�"��"������� �����%���,������&� ��-
��� ������ ��
������ �� � � �