Scheme of Arrangement for Creditors
A Scheme of Arrangement is a statutory legal process that allows a company to restructure its debt. It is not an insolvency procedure under the Insolvency Act, but must be approved by the Court.
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What Happens if a CVA Fails?
What happens if I enter into a CVA and then can't keep up the payments? Will I be personally liable for any debts? The above question was asked by a potential client and we feel that it would appropriate to respond to this.Firstly, a CVA is a Company Voluntary Arrangement so their is NO automatic transfer of debts to the individual. It is possible that a director may have personally guaranteed the debts of the company so, in that instance, yes they would be liable. Of course, that would have been the case whether the business went into a CVA or not and subsequently failed.So, if the company is not able to keep up the payments that does not mean that the company voluntary arrangement will be stopped and the business goes into liquidation. As supervisor, we would look to see if we can make a modification to the arrangement. This would mean that we would have to call another creditors meeting and put out an amended proposal. One quite common change is to extend the period that the CVA runs for. So, instead of 3-5 years we may look at extending to 5-7 years. Normally, but not always, the creditors do not wish to see a reduction in their total overall dividend. Of course, any modification will need to be voted for by the creditors.If the company is simply not viable anymore, and cannot continue to meet its obligations then, as supervisor, we will petition to wind the company up. It is still possible to go into a creditors voluntary liquidation but that would have to be handled by different insolvency practitioners as otherwise we would have a conflict of interest. I am a creditor/supplier of a business in a CVA: what if it fails? As a condition of the CVA the company must not increase its liabilities to any of its creditors. Therefore you must contact the supervisor of the CVA to point out that you are not being paid. In fact, if a new debt is building up then you are still able to take any legal action necessary to recover the debt. It has to be a NEW debt and not contain the debt that is bound by the CVA. I am already in a company voluntary arrangement that was organised by another insolvency practice but I can't keep up with the payments. The supervisor is unhelpful what can I do? Some CVAs do fail and it is often as a result of badly drawn up proposals. The company tries to pay back too much too quickly or the costs are not cut quick enough at the outset.Well, there maybe a solution to the problem in that someone may want to buy the business, restructure and recapitalise it. We do have contacts and access to some funds that can help with this.
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Financial Forecasts in a CVA
If you are thinking of making a CVA (or IVA/PVA) proposal to your creditors then you have to make forecasts of how the company will perform
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Company Rescue in Scotland: CVAs are supported by HMRC
If you run an insolvent or struggling Scottish company the chance of rescue is low. Amazingly, less than 1% of insolvent companies are rescued by a company voluntary arrangement or CVA
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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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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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Prezzo’s CVA strategy appears to be working
I recently read an article in The Caterer , indicating that Prezzo is doing the right thing regarding its CVA being approved by its creditors - Their losses have been halved.It left me thinking, what should directors do once a CVA has been approved? Well, quite frankly, they should follow Prezzo's example. Yes, Prezzo is a big chain of restaurants but, what the directors are doing, in reality, any director can do in some form or another. So, what is it that is being done? In my view there are 3 fundamental things:Change Change ChangeOk, that is a bit flippant but lets look at it more closely.After the CVA was agreed Prezzo changed the management team by appointing Executive Chairwoman, Karen Jones. In small businesses it may not be that easy to change in this way, but management really should consider changing their structure. Perhaps responsiblities could change, maybe someone should be let go or even promoted? Change the strategy or focus on fundamentals. Karen Jones said the company was now focused on ensuring customers left wanting to return after a period where a “strategy of new openings and new concepts distracted from its mission of hospitality”. In hindsight that seems so obvious, a returning customer is worth so much more as you do not have to spend loads of money to get them back. Change your financial controls. The company's directors will need advance notice of any problems and the rigour of the process means that they must have good management information. Poor financial records is the principal reason that companies become insolvent.Investing in the future is the next big thing. Finding new money to carry out change can be a challenge. Debt for equity swaps can work in larger businesses where the lenders see an opportunity down the road. Debt relief can increase working capital by improving cashflow. In smaller businesses, creditors like to see that directors and stakeholders are putting money in. So, maybe sell some assets or try to raise other sources of finance. Lenders will lend to companies in a CVA as long as they are happy that the changes mentioned above are happening and any forecast is realistic.If you want to know how we can help businesses then give us a call on 0800 970539
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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Bury FC Delay CVA despite Winding Up Petition
Manchester based football club, Bury FC, have requested more time for them to consider a rescue plan. The newly promoted club are experiencing financial difficulties and received a winding-up petition from HMRC, due to unpaid debts, adjourned at the High Court in June, for what would be the third time in a few months. The club were given six weeks to sort out their future. Steve Dale, owner, was encouraged to use the insolvency mechanism of a Company Voluntary Arrangement, to settle the club’s hefty debts. He, himself stated in April, that the club’s financial situation was ‘’significantly worse’’ than he thought, when he took over. Only yesterday (9th July), during a meeting with the Giggs Lane Club’s creditors, was the CVA decision postponed for a further six weeks. Despite their promotion to League One last season, if creditors agreed to the deal, the Shakers would face a 12-point deduction. Inquesta Corporate Recovery & Insolvency are the potential supervisors for the proposed CVA. The director, Steven Wiseglass said: ‘’The creditors have adjourned their decision pending further negotiations and are scheduled to meet again on Thursday 18th July. We continue to work closely with the club, its director and the creditors to try to ensure a successful outcome.’’ Additional to the financial issues, Bury FC have been in dispute with Manchester City, who are to serve them a notice to leave their Carrington Training Ground. Manchester City allowed the Shakers to use their training ground since 2014, when they moved into a new City Football Academy. According to Manchester City Bury FC have failed to meet their obligations in the deal, regarding maintaining the buildings and pitches and numerous break ins have occurred. Once the notice is served, City would allow Bury until October, to find an alternative training facility. What is the future going to be like for Bury FC? Will they be rescued? Or will they face further challenges? What do you think? Comment below…
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Retailers increasingly turn to CVAs to restructure their businesses
UK High Street flagging as retailers increasingly turn to CVAs Figures from the British Retail Consortium (BRC) show that the UK high street and retail performance is facing difficulty. In 2016/2017 we saw a sharp decline in performance and it has been stressed that this has continued.This has been borne out in the high number of companies entering administration or seeking company voluntary arrangements (CVAs) within the last 12 months.Here, we'll take a closer look at UK high street performance and the factors causing it to suffer. Firstly, What has happened to high street performance in the UK? These are the key statistics from the latest BRC research:Overall year-on-year (YOY) retail sales fell 2.7% in May 2019 (the biggest decline on record!) Food sales dropped for the first time since June 2016, with further declines in clothing, outdoor goods and footwear 1,566 stores have had to reduce rent amounts Retail & Leisure Parks account for a third of all closures in the UK as a result of a CVA, administration or liquidation Nottingham city centre has experienced the most closures through either a CVA, administration or liquidation Birmingham holds the most closures of all UK Urban Areas. They've had 26 rent reductions and 23 closures since January 2018 Of all the Counties, Greater London saw the greatest damage, by far Footfall was down 1.4% on average over the 12 months to March 2018 As in 2016/2017 figures, the South East saw the most rapid fall in footfall There has been 140 closures and only 6 rescues of retail/leisure operators, since January 2018 To date, May 2019, 24 companies have failed, 743 stores have been affected and 31,250 employees have been impacted.How has this affected specific businesses? Several UK high street retailers have hit the headlines after being forced to take action due to falling footfall, including:Select: Closure of 14 stores, despite 50 being earmarked. Additionally, they have requested for a rent reduction L K Bennett: A notice of intention for Administration was filed, leaving 41 UK stores at risk as well as 480 UK staff affected Poundworld: Saw the closure of almost 200 stores, as they faced liquidation Mothercare: 60 store closures with 77 stores having their rent reduced by 17% Toys R Us: Entered administration after failing to find a buyer, having implemented a CVA New Look: Closed 60 stores and cut 980 jobs after agreeing to a CVA Homebase: A CVA vote, left 45 stores to cease trading with 1500 jobs at riskDespite this, six retailers have been saved. See the cases of House of Fraser, Arcadia, Office Outlet, Patisserie Valerie, HMV and Evans Cycles. What's caused this decline in high street performance? Economic and political uncertainty, falling consumer confidence, changing consumer habits and rising inflation have all contributed to the long-term decline of the UK high street.However, the most pressing factors impacting the retail sector in May 2019 were:1. Low Growth OnlineKPMG's UK retail partner, Paul Martin, stressed: “The extremely low growth online is real cause for concern, especially with almost a third of all non-food sales today being made online. This trend has continued to manifest itself over the last year and requires real focus from the retail community.”2. Business ratesIncreased business rates are potentially the biggest single contributing factor when it comes to UK high street performance.Gary Grant, founder of high street toy retailer, The Entertainer commented: "Landlords are being very realistic about their rent, but the one thing that is not negotiable are business rates."[The retail sector] is seeing many stores empty for long periods of time and the biggest issue is that [retailers] can’t open stores.''“Business rates are out of line now with retail turnover. Business rates are the real killer. Any increase in cost where you have flat and declining turnover is going to put pressure on the bottom line.''“The Government just haven’t got it. They need to take some responsibility for the high street’s decline.”Likewise, Helen Dickinson, OBE, BRC's Chief Executive, states how such rates prevent retailers from ''investing in their physical space. We have a broken tax system, which sees retailers paying vast sums of money regardless of whether they make a penny at the till, and yet the Government is failing to act.''With the UK high street continuing to suffer, it pays to know your options as a company boss. Taking difficult yet decisive decisions at the right times will put you in the best possible position to keep your company trading successfully.If you are worried about declining UK high street performance and the prospect of a CVA, contact the experts at Company Rescue today. Take a look at our site for many useful pages of advice.
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