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Company Voluntary Arrangements for LLPs

We were asked by an accountant last week can one of his firm's clients which is a LLP propose a CVA to deal with tax debts.

It appears that the firm in question owes around £400,000 to PAYE and VAT.

The answer we gave was; yes a company voluntary arrangement may be proposed for a LLP

Portsmouth to discover fate at High Court 3rd August re CVA

We understand that the company voluntary arrangement challenge mounted by HMRC under section 6 Insolvency Act 1986 will be heard on 3rd August in the High Court.

Could be a very interesting day for the club.

We understand the vote of HMRC at the CVA creditors meeting was in relation to the players' image rights and agency fees to offshore companies, therefore not taxable in the Administrator's view. HMRC clearly disagreed.

Miss Sixty and the "Powerhouse" Principle

In our eNews of last week (email me if you wish to receive this monthly newsletter)
regarding the Miss Sixty UK Ltd - CVA. See a copy below in italics

"Another section 6 application this time not by HMRC but by a disgruntled landlord, called Mourant & Co Trustees.

The s6 application is a bid to have the decision of creditors approving the CVA revoked, because the parental guarantor was unfairly prejudiced against.

Mourant owns the Liverpool shopping Centre known as the Metquarter, where Miss Sixty and sister brand Energie had stores which were both were on 10-year leases. Crucially each lease was in turn guaranteed by Miss Sixty UK's Italian parent company, Sixty SPA.

However, under the CVA proposed by Sixty UK to determine the shop leases, the landlord also lost the parental guarantee. Had the company gone into liquidation, the guarantor's obligations under the lease, ie to pay the rent and charges would have continued. The CVA, however, allowed Sixty SPA to walk away.


Similar to the Powerhouse case the court is likely to find that the CVA was not able to unilaterally determine another contract i.e. the parental guarantee, without bilateral concurrence. Watch this case!

Our views on CVA’s are well known - always ensure that there is concurrence and consensus as much as possible.

So, whilst Powerhouse indicates that a parental guarantee cannot be determined by a subsidiary CVA and the Miss Sixty case may vindicate the Powerhouse decision, this determination of a parental guarantee using the CVA as a tool is still possible if done with consensus and an appropriate payment to the landlord by the guarantor."


Well it seems I was right on both issues; the court DID find for the plaintiff and the CVA was rejected because it was unfairly prejudicial against the landlords. Interestingly though, the judge
stated that the compromise of a landlord's claim against the guarantor of a tenant debtor - also known as the Powerhouse principle - IS a valid legal mechanism within a CVA, as long as the compromise is not unfairly prejudicial.

In a judgement that was critical of the nominees and supervisors of the Miss Sixty CVA, Peter Hollis and Nick O'Reilly, then of Vantis PLC, who proposed a CVA as administrators of Sixty UK Limited, Justice Henderson found that a landlord could have been crammed down in this way, but was in fact unfairly prejudiced (Mourant & Co Limited Trustees and another v Sixty UK Limited (in administration) and others). The CVA was set aside.

The judgement concludes:

"I am conscious, of course, that I have not heard the administrators' side of the story, because of their decision not to participate in the trial. Nevertheless, I am satisfied that there is a prima facie case of misconduct on their part which ought to be considered by the professional bodies to which they are answerable. I therefore propose to direct that copies of my judgment should be sent to the appropriate bodies by which they are licensed to act as insolvency practitioners."

This is something that the IP's regulator will have to consider carefully.

However, the main point for landlords is that the case yet again underlines that CVAs are an enormously powerful tool that can compromise a lease and indeed, if properly prepared, may compromise personal and parental guarantees.

Sheffield Wednesday: WAS NOT SERVED a winding up "order"

Wednesday were served a winding up PETITION!

Big difference:

The winding up order is made by court at a winding up HEARING if the creditor is not paid and the company cannot agree a deal.

A winding up petition is served on the company to start the winding up process. There's usually around 60 days between the date of service and the hearing.

So come on you BBC journalists and indeed the club get it right please??

Sheffield Wednesday was NOT SERVED A WINDING UP ORDER!

For a full description of the process see this page.

Halliwells LLP carved up in pre-pack administration

Halliwells the north west law firm was broken up in a pre-pack administration process this week. The pre-pack process was used to sell its assets to Hill Dickinson, HBJ Gateley Wareing and Barlow Lyde & Gilbert.

A property deal which saw Halliwells' equity partners share around £17m, was not the sole reason for the law firm's demise, joint administrator Dermot Power of BDO Manchester has said.

This is one of the first large failures of an LLP law firm, it owed around £17m to RBS. See here for a case study for a company voluntary arrangement for a south east based law firm

Dickinson Dees Law Firm Sees A Profits Rise

Dicky Dees, as we call it here at KSA, had a better year in 2009-10 despite fee income falling 5% to £48m.

Jonathan Blair managing partner reported an 18% rise in profits to £13m.

KSA Experts Guide to Creditors Voluntary Liquidation

Excusively available today through our CompanyRescue Blog page we are proud to announce the launch of our:


Experts Complete Guide to Creditors Voluntary Liquidation

With over 50 pages of content, this is the ONLY expert guide to liquidation available free of charge on the internet.


Although its far from a comprehensive technical guide, it is aimed at giving worried directors and their advisors everything they need to know about the voluntary liquidation process.

Want to know what liquidation means for directors? What is wrongful trading? What is a preference? Want to know how to deal with overdrawn directors current accounts in liquidation and lot's more?

Want to know how liquidation works? Get our FREE and SAFE to DOWNLOAD 50 page PDF here. Just two clicks!

What will happen to the HMRC time to pay debt of £5bn+?

Accountancy Age reports that the ICAEW is to write to the government and ask what will happen to the debts built up under the Time to Pay scheme (TTP) introduced by HMRC late 2008.

In another story last month Accountancy Age described how the scheme was being abused, according to Andy Wood of R3 Yorkshire. In his opinion HMRC will be lucky to collect 75% of the arrears built up in the Time to Pay scheme.

We see TTP as a powerful tool to help short term cash flow problems, but if some companies are becoming reliant on this as unofficial "life support" and cannot function without a new deal every few months, then it is being abused and the company is likely to face aggressive action by the tax creditors.

The message we would give directors is: get costs down, put staff on short time working, drive marketing (and hopefully sales) manage costs/cashflow daily and focus on a recovery programme. Yes use TTP where necessary to survive a short term cashflow hole but do not build this in to your business plan as a permanent long term solution.

If this informal turnaround approach does not work and HMRC withdraws TTP support, then consider using a company voluntary arrangement to restructure the company.

CVA Flowchart

I once met an engineer who said "your website is full of lots of words, can't you give us some diagrams or pictures Keith"?

Specifically this blog is about the company voluntary arrangement flowchart here
http://www.companyrescue.co.uk/cva-company-voluntary-arrangement/flow-chart

Feel free to use this as often as you like and pass to your clients or colleagues.

Portsmouth City : CVA suffers section 6 application by HMRC

The sorry tale of the company voluntary arrangement for Portsmouth City continues.

Further to my blog of 17th June (about the Portsmouth CVA) the HMRC chaps have mounted a section 6 Insolvency Act 1986 appeal against the CVA. As we said the HMRC vote was allowed at £37m at the creditors meeting the CVA would have been rejected. If the court finds that there was a material irregularity at the meeting, then the Court may order a new creditors meeting or any order it sees fit.

So the administration continues and there will be a hearing in due course. Indeed the club's administrator Andrew Andronikou, who had been anticipating HMRC's appeal, warned the case may not be heard until October or November.

HMRC has argued that £13m of debt was left out of the original calculations; if the £13m figure is included, says the HMRC, it would then have more than the 25% of the debt it needed to block the CVA.

"We are acting in the interests of all those creditors who are not in the football industry. We don't think it's right that they are offered 20p in the pound against full repayment all others," an HMRC spokesman told BBC Sport.

"HMRC feel we have been or will be unfairly prejudiced by the decision to accept the CVA, because we believe there were material irregularities in the way in which the votes of creditors were counted at the creditor meeting and because, to our knowledge, the full amount of our claim should have been admitted for voting purposes.

"Also we cannot agree with the striking out of £13m of debt which seriously undermined our ability to challenge the CVA."
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