Almost one in ten company voluntary arrangements (CVAs) have resulted in the firms falling into administration within three years, according to an accountancy firm.
Moore Stephens warned too many CVAs, which are used to help turn around companies such as British Home Stores (BHS), in too many cases only delay the inevitable and fail to protect creditors.
Of the 1,479 businesses that entered into a CVA between 2013 and 2015, 128 have already gone into administration.
Where a company becomes insolvent these arrangements allow it to continue trading while paying creditors over a fixed period upon agreement by creditors.
CVAs were used to prop up BHS and Austin Reed, but did not succeed in preventing them from falling into administration.
BHS's defined benefit (DB) pension funds could fall into the Pension Protection Fund (PPF) where most members would see a reduction in benefits due to the compensation cap.
Both companies entered administration a day apart in April 2016, having previously agreed CVAs. A CVA was agreed for BHS in March 2016 to cut costs and prevent widespread store closures, while Austin Reed had undergone a CVA in February 2015.
Restructuring partner Michael Finch said these two examples prove a CVA is no silver bullet for turning a business around if the issues that lead to insolvency are not addressed.
"When used well, CVAs are an important tool to prevent viable businesses closing down, jobs being lost and creditors seeing their money vanish. But the number of businesses with CVAs that very quickly fail and then enter administration suggests that too many of them are missed opportunities for both the businesses and their creditors.
"To reach the stage where a CVA is needed shows that a business is likely to require significant restructuring to be successful in the long term. Unfortunately, too many CVAs only manage to delay the inevitable, and postpone administration for a matter of months."
Even a well-structured CVA is only the starting point in the turnaround of a business, he added.
Austin Reed's DB scheme had already been through the PPF assessment period in 2015, triggered by the CVA and came out by April 2015, but a year later re-entered the assessment period. However, the scheme has not been transferred to the lifeboat fund, according to the PPF's website.
Last week The Pensions Regulator begun formal enforcement action against a number of key protagonists and companies involved in the BHS saga to attain redress for the scheme members.
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