Rent Reductions in a CVA
A rent reduction might be proposed with the landlord as part of a CVA agreement. If the majority of creditors agree, this can be imposed on the landlords. For it to be fair the landlords will have the option to take back the premises.
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Hive down and Hive Across to protect contracts and IPR in a CVA
We want a CVA but we are worried that our intellectual property would be put at risk, do you have a solution? Company Voluntary Arrangement with hive down We are pragmatic experts who will always try to help you find solutions. By using a CVA we can restructure viable but distressed companies. Sometimes that requires solving complex problems that can mean a "plain-vanilla" CVA is not workable. So we have used the following methods to address such complex scenarios: What is a Hive Down? An asset, or the whole business can be hived down to a newly formed subsidiary of "Topco". Let's call this "Bottomco". It has a new clean balance sheet, no existing liabilities, but of course, no credit rating.The board of Topco resolves to sell some or all of the assets to its subsidiary Bottomco and the consideration for this transfer is the shares in Bottomco, or cash payment can be made. Perhaps Bottomco could raise new funds to achieve this. The providers of such monies should consider taking appropriate security and or the bank debt in Topco can be "novated" down to Bottomco.Topco is now an insolvent company, with modest or zero assets other than the shares held in bottomco which are in effect not worth anything much.Topco can then enter a company voluntary arrangement to repay its creditors (generally not including it's secured creditors) say 30p in £1 over 5 years, or 25p in £1 in 3 months. Bottomco may then pay this to Topco in consideration for the release of the shares.The supervisor of the CVA can take a charge over the company and its assets (shares in Bottomco) until the CVA contributions are paid over.After the CVA ends Topco could be wound up or left as holding company for example. The people involved may buy the shares from the liquidator after valuation.This process avoids what is known as "transaction at an undervalue" which is a breach of s238 Insolvency Act 1986. It is relatively simple in concept but legal advice is essential to avoid personal liability. What is a Hive Across? An asset, or the whole business can be hived across to a third party company in consideration for money or shares. This is more complex than a hive down and requires careful planning and legal advice to avoid "transactions at an undervalue" which is a breach of s238 Insolvency Act 1986. Legal advice is essential along with creative advice from CVA experts.KSA works with one of the UK's top insolvency lawyers to ensure that a CVA with a Hive Down, or a CVA with a Hive Across mechanism are well conceived and designed, properly structured, and powerfully executed.If this sounds of interest call Keith Steven on 0800 9700539 or 07974 086779 now.
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Pre-pack Administration and Phoenix Companies: What’s the difference?
The content on this page has been written by Keith Steven and approved by Chris Ferguson Licensed Insolvency Practitioner and Managing Director of RMT KSA
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What happens at a CVA creditors meeting
I am worried about the creditors' meeting for my company's CVA. What should I do to prepare and what is likely to happen? Will anyone attend?
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Why do football clubs go into a company voluntary arrangement?
Football clubs tend to go into a company voluntary arrangement for two reasons.Firstly, if the debt is mainly unsecured i.e. the club does not owe the bank money, but owes HMRC and players for instance, then it is the most cost effective solution as it means that the club can continue to be run by the directors and a deal can be struck with the unsecured creditors for a proportion of the debt to be paid out over a number of years. For details of how the CVA works in practice then please refer to our detailed CVA page.However, a CVA does still carry a penalty in the leagues as it is classed as an insolvency event. HMRC is almost always a substantial unsecured creditor and it tends to favour CVA.The second reason is that a CVA is a way for a football club to come out of administration and continue to play in the leagues. Once the administration has protected the immediate position then the club has time to propose a CVA to the creditors. See our page on exiting an administration via a CVASo why don't they go for a CVA straight away?Administration can be arranged quicker and more easily than a CVA if the time pressure is on. This is especially the case if a winding up petition has been issued by a creditor. A CVA, in most cases, needs to have been at least drafted before it can be used to defend a club against a winding up petition. What is more, a football clubs financial affairs are likely to be quite complex with perhaps more than one company being involved in the running of the club.A notice of intention to appoint administrators filed at the High Court can quickly hold off any actions by aggressive creditors effectively buying time to arrange a restructure or indeed a sale of the business. However HMRC is more aggressive in its approach to football clubs as explained earlier. As such, winding up petitions are served more quickly and without much warning. If the petition is advertised quickly then the bank account would be frozen. Administration can stop this happening and allow the club to continue to trade.
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Partnership Administration
A Partnership Administration Order is similar in some ways to Administration for a limited company, but should not be confused with this or administrative receivership. The Partners or one of the partnership creditors can petition to the court for an administration order.
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Creditors Meetings in An Insolvent Liquidation
The Creditors Voluntary Liquidation Process If a company is unable to pay its debts and is no longer viable then a Creditors Voluntary Liquidation (CVL) tends to be the best option. The directors start the process by appointing a licensed insolvency practitioner to put together a statement of affairs of the company and contact all the creditors. In a CVL, there are two key meetings. Firstly, a meeting with the company members and shareholders, secondly, a meeting with the company’s creditors. What Happens In The Meetings? With the shareholders and company members, the liquidators will discuss and decide upon a resolution to try and put the company into liquidation.Up to 14 days after the shareholders meeting (note: it can be arranged for the same day), a creditors meeting is arranged. A 7 days notice period must be given, to allow the maximum number of creditors to attend. With the notice, two other forms, a form of proxy and the proof of debt form, are given to creditors, which must be read, signed and brought back to the meeting.In a creditors meeting, the insolvency practitioner will explain the companies financial position and outline the statement of affairs. Additionally, the reason for the liquidation is shared. Within these meetings, creditors are allowed to ask questions regarding the information they’re being told. Funnily enough the most usual question is “where has all the money gone?” . At the meeting the creditors are asked to approve the insolvency practitioner as the liquidator. In some cases the creditors may not want the insolvency practitioner appointed as they wish to have more control of the process. As such, they will bring their own insolvency practitioner to the meeting who will seek to get appointed. Large companies that supply lots of businesses often go down this route, as do lenders. This is why the process is called “creditors” voluntary liquidation.A hardcopy of the statement of affairs is given to all creditors. Within 28 days of the meeting, creditors must receive a summary of the meeting and all agreements. What Is Section 98 of the Insolvency Act? The Insolvency Act 1986 outlines the legal procedures for all matters for everything relating to both personal and corporate UK Insolvency. Section 98 relates to the procedures for the creditors meetings.The procedure for the meetings of creditors can be found here https://www.legislation.gov.uk/ukpga/1986/45/section/98 .In 2016, a set of new rules was integrated into the 1986 version, to modernize the law. This document can be found here https://www.legislation.gov.uk/uksi/2016/1024/pdfs/uksi_20161024_en.pdf . The main changes to the 1986 law are discussed below. Firstly, the requirement for physical section 98 meetings, is abolished. Instead, virtual meetings or processes of deemed creditor consent are held. With processes of deemed creditor consent, the directors send written proposals to creditors regarding nominating a liquidator. If 10% or more object to these proposals, then the directors must call a physical meeting with creditors, to make a decision, if not, the proposal is approved.There are alternatives to deemed creditor consent. These are ;Correspondence Virtual meetings Physical meetings Electronic voting Any other decision-making procedures which allow creditors to have equal participation in decision-making.Another new rule is that final meetings have been abolished. This means that creditors now have a right to object to the proposal, within a period of 8 weeks from the delivery of the prescribed notice, or determination of applications for further information or challenges to remuneration.Other 2016 rule changes involve:Creditors now have the ability to opt out of emails Liquidators being required to send a progress report to all parties, every 6-12 months Creditors being able to communicate with debtors without consent, as long as the creditor and debtor have communicated previously The meeting being chaired by the administrator or someone appointed on their behalf, only.
ReadWhat is a Preference In The World Of Insolvency?
A straightforward guide to s239 Insolvency Act 1986 - or s243 Unfair Preferences in Scotland A potential "preference" occurs when a company pays a specific creditor or group of creditors(s) and by doing so makes that creditor "better off" than the majority of other creditors, before going into a formal insolvency like administration or liquidation. However, the second important test is that there must be a "desire" to make that particular creditor better off.This is an area of insolvency law that is commonly misunderstood, but can cause many problems for those who create the preference. If the preference is proven it can lead to action against the beneficiary, the directors, lifting of the veil of incorporation, personal liability and if wrongful trading proven, disqualification under other provisions of the insolvency legislation. So how does preference happen? A fictional case study for a preference under s239 Insolvency Act 1986 Acme Nuts and Bolts Company Ltd, has been trading for many years and has seen a steady decline in sales and profits over recent times. Mr Bolt, the managing director, sits down with Mr Washer the financial director, and they read the accounts, look at the cashflow and decide that the company is insolvent. It is likely that the company will breach the bank overdraft if all creditors demands for payment are met. The PAYE is already 2 months behind and the most recent VAT quarter has not yet been paid.Mr Bolt thinks that a smaller and leaner workforce, operating in a much smaller property would be a viable business but the company's long term employees would be too expensive to pay off. Redundancy costs alone would be £100,000. They cannot see how to pay this and decided to slowly wind the company down before starting again.One of the suppliers to Acme is a company owned by Mr Bolt's brother, it is owed £12,000 for supplies in the last 30 days, and has always been paid on time by Acme. Another supplier is owed £16,000 and it has a smaller factory property available, that Mr Bolt would very much like to use to start a new company.Mr Bolt tells Mr Washer to pay both these amounts as soon as possible and then he decides that they will talk to an insolvency practitioner about the options for "dumping the company". Some 8 weeks later the company enters liquidation and the liquidator begins to examine the conduct of the company in the period leading up to the liquidation.He discovers that Mr Bolt's brother was paid £12,000 and the other supplier was paid £16,000, just before the company decided to cease trading and go down the liquidation path. VAT, PAYE and over £500,000 worth of other creditors debts were not paid.Under s239 insolvency Act, the payment to Mr Bolt's brother is a clear breach of the Act, both tests were positive, the company paid the debt when not paying PAYE/VAT and other creditors. Now the more difficult test - was their a desire to create a preference"?Because the brother was a "connected creditor" or associate through blood, the law automatically assumes that Mr Bolt wanted to make his brother better off. The liquidator demanded the money back from Mr Bolt's brother and the court agreed.On first inspection by the liquidator, the other payment to the company with the spare property was less clear cut. Was a payment made? Yes. Was it paid when other creditors were not paid? Yes. Was a desire to create a preference in place? Possibly but not conclusively. However, after a few weeks the liquidator noted that Mr Bolt had started a new company and the address was the same as the paid customer of Acme, so he took action to recover that money too. Interestingly, some of the company's assets appeared to have mysteriously found their way to that property too!The "desire to create a preference" test is much more difficult to prove in other cases, often the threat of the liquidator taking action sees a deal being done where some of the debt is repaid, to the liquidator, for the benefit of other creditors.This is a difficult subject matter but a vitally important one for every director to consider when reviewing the company's insolvency and how they have acted.This is a path that requires professional advice, common sense and full discussion by the board, and proper documentation of decisions to pay suppliers taken at board and management levels.Clearly, paying friends and family is risky. Paying back directors' loans is a preference if the company subsequently enters liquidation. Remember it is the word "desire" that is key. So paying a creditor that is a absolutely critical to the continued business such as a web hosting company for an e-commerce site is more of a commercial decision than a "desire" to help the hosting company.Finally, remember though that preferences are only crystallised by a formal insolvency like administration and liquidation. How do we avoid creating a preference? Common sense dictates that if the decision to pay someone seems "off" it usually is!The safest route is to ensure that all creditors are treated "equally". If that is not possible then ensure that if one creditor is being paid faster than others that there is a very strong commercial reason. For example, you may wish to pass a board resolution to "pay XZY Ltd as it maximises the interest of creditors to pay XZY Ltd as they're our only supplier of widgets, by paying them we keep the factory going and generate debtors". Consider rescue and insolvency advice at the same timeEnsure that you regularly consider of the company's solvency, you may ask for a time to pay PAYE or VAT along with asking the bank for support, introduction of new capital. If all of this is not sufficient to prevent the company running out of cash, then more radical solutions must be considered, such as administration and liquidation, company voluntary arrangement or receivership.This is a path that requires professional advice, common sense and full discussion by the board and proper documentation of decisions to continue trading and to pay suppliers taken at board and management levels.
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How Does Retention of Title Work and What Happens in Insolvency?
A Retention of Title Clause allows ownership of any good within the contract of sale, to be with the supplier, rather than the customer, until full payment for the goods has been received. This reduces the risk to the supplier in the event of insolvency.
ReadCVA Debt Write Offs and Tax
Debts written off in Company Voluntary Arrangements are not subject to tax, under s144 Finance Act 1994.
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How To Remove A CCJ From My Company
When a creditor is not paid they may seek to get a County Court Judgement (CCJ), issued from the Court. This can be against an individual or a company.Receiving a CCJ can be quite damaging if it is not managed and dealt with correctly. The judgment needs to be removed from the company’s or your credit rating as soon as possible. If it is not removed, this will act as a barrier in the future, affecting you or your company in many ways, including when you wish to borrow money and when seeking employment opportunities. Therefore, this simple page indicates the three ways you can get a CCJ removed: Pay the CCJ within a month CCJs appear on credit records usually within just a few days of the judgment, however, if you act fast enough and the debt is paid within the month, in full, the judgment can be removed from the register. If the Court are aware of this, then they will act as if no register was issued in the first place. However, it is the responsibility of the creditor that has been paid to inform the Court – if they do not do this, then the Court will be none the wiser, and the CCJ will remain. A tip for you is to ask the creditor, once the debt is settled, if they have informed the Court – if not you can take action yourself and do so. Proof of Payment is required as is a £15 fee for the process.If the CCJ is paid at a later date instead, you can get a certificate of satisfaction, classing the CCJ as satisfied on the public register – it has been paid, despite not being on time. However, the settled debt does not remove the CCJ, thus it remains on your credit record – the benefit being that it just makes it slightly easier to obtain credit. Unpaid CCJs are shown as unsatisfied, hence suggesting a poor credit record Wait six years From the date of the judgment, the CCJ remains on the register for a period of 6 years. Once the six years have passed, the judgment is automatically removed from your credit record – even if it is not paid. This may sound appealing, letting the CCJ die out, but do you really want to have a poor credit rating behind you for six years? Consider the consequences, can you afford the risk?Have the CCJ set aside If the CCJ is a default judgment, i.e. the defendant does not acknowledge the claim or defend it, it can be set aside. If you reply to the claim, admit to the debt or attended the hearing for the issuing of the judgment, then this is not a default judgment. Another way to have the CCJ set aside is to show the Court that you have a good reason to defend the claim, i.e. the claim form may have never been received or was sent to the wrong address, meaning you missed the opportunity to pay the debt within the month. If there was a good reason for you not attending the hearing, the Court can set it aside. This automatically removes the CCJ from the public register, leaving its record non-existent. To do this, you must apply to the Court and do so quickly, as soon as it has been registered against you. Why is it important to take action to remove the CCJ? If you do not act to remove the CCJ, it could lead to a winding-up petition being ordered, for debts over £750. A winding-up petition freezes all the related bank accounts and negatively affects your reputation. If this is the case, seek turnaround advice from one of our expert advisers, who can help you and discuss options you can take to save yourself and your company.If you have an affected credit rating from a CCJ, you can be hived down or hived across to a newly formed subsidiary. This will ‘wipe the slate clean’, though it is very complex and requires guidelines to be followed. You cannot breach transaction at undervalue. Therefore, it is recommended first to take removal action.
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Glossary of Insolvency Terms
We have introduced a glossary of some of the terms used on the main website. Unfortunately this business is full of jargon as are many others, but we thought the following guide would help the reader understand things in more laymans terms.
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