CVA Debt Write Offs and Tax
Debts written off in Company Voluntary Arrangements are not subject to tax, under s144 Finance Act 1994.
ReadWhat is a CVA (Company Voluntary Arrangement)?
A company voluntary arrangement or CVA is a powerful tool that was introduced in 1986. The Government wanted to see more viable companies rescued and continue to trade.
Many insolvency firms ignore this option preferring the control and the larger fees of administration It requires creativity, determination and often hard work to drive a CVA rescue through.
CVA Debt Write Offs and Tax
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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What is a Company Voluntary Arrangement with Hive Up?
When meeting directors they usually like the option of a Company Voluntary Arrangement , but they do have the obvious worries about future trading.Common ideas include “we want a CVA to restructure the business, but we are worried that our intellectual property would be put at risk". Or "if we do a CVA, we may be unable to tender for new contracts”. Or “why would our client continue to work with a company in a CVA”?So, what are possible solutions to these problems? Here, at KSA Group, 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 this requires solving complex problems that can mean a standalone CVA is not sufficient. In appropriate circumstances we have used the following methods to address such complex scenarios. Hive Up What is a Hive Up? Hive essentially means “to move”. An asset, or the whole business can be ‘hived’ up to a currently existing or newly formed GROUP company, we call this “groupco”.This can be a really clean vehicle that is either newly incorporated or a company that already exists in the director’s or group portfolio. It will often have a clean balance sheet, no existing liabilities, but of course, a low credit rating, often 40-50 out of 100 or so. But of course, this is better than having no rating, post CVA.Moving assets within a group is not usually a problem for taxation (though we do stress that we are not tax experts and you should take your own advice from tax experts).OR groupco can acquire the business of oldco through a business asset sale. The trading business can then make payments for the purchase of the assets to oldco, which in turn uses the receipts as the contributions into a company voluntary arrangement .Alternatively, a newly formed company can acquire the shares of the trading company (“oldco”) which is going into a CVA, for nil or low value as the equity of the existing oldco company is often worthless.Usually before deciding on hive up, hive out or hive down, we recommend getting an independent valuer to provide a business asset valuation.Each situation needs careful assessment to decide the best method – call us to arrange a meeting with one of our KSA directors or regional managers to find out more. Hive Down What is a Hive Down? The board of oldco decides to sell some or all of the assets to its newly incorporated subsidiary company, called “bottomco” and the consideration (price) for this transfer is the shares in bottomco, or a cash payment can be made. This is effectively a swap of value for shares.Perhaps bottomco could raise new funds to achieve this. The providers of such funds must consider taking appropriate security and or the bank debt in oldco 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. It enters into the CVA - company voluntary arrangement - to repay its unsecured creditors say 30p in £1 over 5 years, or 75p in £1 in 3 months. Bottomco may then pay this to Topco in consideration for the release of the shares.After the CVA ends, Topco could be wound up or left as a holding company for example. The people involved may buy the shares from the liquidator after a valuation from an independent party.This process avoids what is known as "transaction at an undervalue" which is a possible breach of s238 Insolvency Act 1986.As ever this is only a general guide, we cannot cover every scenario, so if you have a question or problem talk to us soon.Keith Steven - Managing Director KSA Group LtdCall 07974 086779 or 0800 9700539 today
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CVA Debate Review
The CVA debate was very well attended with 50 guests who came to hear the speakers and ask the panel questions.Speakers and Members of the panel wereKeith Steven, Managing Director of KSA Group Gary Weber, National Turnaround Manager KSA Group Professor Joshua Bamfield, Director of Centre of Retail Research Eric Walls, Licensed Insolvency Practitioner Wayne Harrison, Licensed Insolvency Practitioner Professor Grant Jones, Lawyer and Licensed Insolvency Practitioner Tony Groom, Managing Director of K2 Partners and Certified Turnaround ProfessionalKeith Steven opened with a quick history of the CVA and a rundown of how the CVA works, why it is a powerful rescue mechanism and why it is being used in the retail sector.Eric Walls pointed out that a CVA is an agreement with creditors by majority and so it is always likely that some will lose out. The landlord only CVA, popular in the retail sector, may be seen as an unfair process and Eric was sure that this will be tested in the courts at some point. The CVA gains much of its power from case law so this will be a welcome clarification.Gary Weber spoke about the benefits of the process from the company’s point of view and how change and discipline was needed for them to succeed and there had to be a core of a good business in there.Professor Joshua Bamfield of Retail Research Centre talked about the future of retail and the High Street and was able to draw on his research in the sector. His predictions of closures that he made in 2014 turned out to be true. Given the debate was on the CVA process he drew on figures that pointed out that CVAs were responsible for a minute portion of the 3000 stores closed this year so far. Joshua called for more living space in city centres and high street locations and the need for a better experience in our towns. His research led to him predicting that 15,000 stores would close by 2022.Tony Groom of K2 Partners started the questions with a challenge to the panel to say that viability and reality are the main issues facing retailers as opposed to the concept of whether a particular restructuring tool is fair. Wayne Harrison was of the view that all insolvency processes by their nature are unfair as it involves the breaking of a contract that a business may have signed up to but a CVA is perhaps fairer than a pre pack as it is at least transparent. Grant Jones pointed out that it was very unfair that the online retailers were paying little tax, and this was putting pressure on the High Street.As expected many opinions from the floor were that landlords have had it good for a long time with long and inflexible leases and they need to adapt to the new economy.However, It was pointed out that it was probably unfair on the landlord whose rent for premises was compromised due to the poor management of the retailer. Other retail chains are doing well like Zara/Primark/Wagamma. That said a landlord of House of Fraser (HoF) said they were “shocked” at how their premises had been classified especially since they had seen many CVAs before and their own calculations had indicated that the rent was affordable. What is more, there had been dialogue with HoF, which included the option of them taking back the premises, prior to the CVA but it had been forced on them and now the company was in administration they could not take back the premises yet. Interestingly, HoF had sold and leased back some of the stores and set the rent themselves. This intervention was welcome. However, Eric Walls pointed out a CVA is an agreement and not all CVAs are the same. If House of Fraser had not gone into administration, the CVA would have been tested in court.It was the overall feeling at the event that the High Street is heading for a lot of difficulty over the next few years and landlords, retailers and the Government are going to have to act together to preserve the High Street.
ReadCompany Voluntary Arrangement for company or LLP Lawyers – Plan B
We are a firm of very worried solicitors. Our legal practice is a company or LLP. We are under growing pressure from all sides. How can you help us solve these problems, restructure and survive? There are three options to deal with severe cashflow problems, this page looks at Plan B company voluntary arrangements (CVA)A CVA could be the answer to your company's problems and could even help protect you personally from your creditors. But it is a risky approach and possibly very damaging to your company credit rating. A hive down may resolve this credit rating issue, ask us for details.A CVA is a powerful insolvency tool that will ringfence your company creditors (that's all your unsecured but typically not the secured debts) and it can quickly take away the creditor pressure. It is acceptable to the SRA and in our experience the SRA will want to be informed but will not intervene.Many law firms have significant tax and trade debts. By ring fencing tax / trade debts and repaying them in full or in part over say 12-60 months this can have a major impact on cashflow allowing the company to survive immediate winding up threats, reduce fixed costs and people costs, it will usually be acceptable to the SRA and leaves the directors or designated members of a LLP in CONTROL of their business.If the directors believe in the fundamental viability of the practice and are determined to fight for the business then the CVA is a powerful rescue mechanism that is acceptable to the SRA. But most people are not aware that it can also be a powerful tool or framework for the restructuring of the business.Property leases and employment contracts can be terminated, costs cut and the business re-shaped to aid survival. This can be tough to drive through without the CVA approach. It can also be an emotional challenge for the directors to have to drive, so bringing in turnaround and insolvency experts is vital.KSA Group has turned around hundreds of companies including law firms. We can see the wood from the trees and guide your restructuring programme. CVA Guide It must be understood that this mechanism is not easy; the directors must work hard on a plan to change the business, cut costs and prove they can make the company viable. Above all the directors need to be determined and united to make this technique work.So what is a Company voluntary arrangement (CVA)? See our experts guide to company voluntary arrangements here for a full description, case studies, flowcharts and case law.The best way to think of a CVA is as a deal between the debtor (the company that owes the money) and the creditors; the people or businesses to whom the money is owed.Where the debtor cannot pay off its debts on time or the company is insolvent (for a definition of insolvency click the insolvent) or if your company is under huge pressure then the CVA may be an appropriate solution.Making a payment on a regular periodic basis the company can bring together all of its unsecured debt problems (except where the creditor has security such as a mortgage over property) and get on with their business and their lives. Who should use a CVA? It is imperative that the CVA is only used where the LLP or company is viable or where it has disposable assets that can be turned readily into money in the short to medium term. Using the CVA can allow time to sell such assets for better value than a liquidator or administrator can obtain.If the business isn't viable it should be wound up (see Plan C) as soon as possible and if personal guarantees are a problem, this may lead to IVA or personal bankruptcy for the directors.If the company is behind with PAYE, VAT and trade creditors then action may be taken by one or more of these creditors. If they petition to wind up the company, the board starts to lose options and lose control.If however the business has never made profit, sales are not rising to the level where overheads start and known prospects aren't great then a CVA is probably not suitable.Above all, time is against you so you must all ACT quickly. Writing the CVA proposal The law envisages that the debtor(s) will write the proposal and then ask an insolvency practitioner to act for the company. Of course the process is complicated and you have a business to run. Therefore it is probably best to use experienced, pragmatic and respected Turnaround practitioners such as KSA Group to write the proposal. Regardless of whom you use the following points should be remembered:1. Base it on sensible cashflows, sales and costs. Don't guess, don't expect large increases in fees.2. Expect that things in the first year will be a difficult and that fees may indeed fall.3. As a result expect to suffer in the first year and do not promise to make large payments in the first year.4. Don't promise too much but as above make sure it repayments are affordable. CVA Proposal contents The proposal should include a description of why the business has failed and why it is insolvent. It should also detail what the structure of the CVA deal is and how the creditors are going to be repaid. To help the creditors decide whether to accept the CVA it must contain what is called a statement of affairs. Or SOFA for short.A SOFA paints a picture of your financial position and demonstrates that the company is insolvent. It will also show what would happen if the company was wound up and went into liquidation and what the outcome would be if the CVA were approved and successful. Of course the risk of SRA intervention means that liquidation may generate NIL return for creditors. SO CVA is a better choice, whilst perhaps Hobsons choice.The document will describe how long the deal is for. Typically most CVAs last between three and five years. And the document will describe how much the company will pay from the business in the months and years ahead to its creditors.After the document has been completed and the nominee (Nominated Supervisor) has reported it can be filed at court. The purposes of this are to ensure that the document that is filed at court is the same document that is circulated to all creditors.BANKS?Occasionally the bank is unsecured in these situations. It may not have a valid security over debtors for example. If so then the bank would be compromised by the CVA. We are currently negotiating with several banks to reduce debt where the bank does have security, but the company is unable to service that debt.Most often though the bank is secured and can appoint its own administrator or receiver. Care must be taken to keep the bank appraised and detailed forecasts provided to show whether the company can operate within the set facilities.Solutions include loan payment holidays, occasionally debt write down, long term debt conversion from overdraft to long term loans. Re-banking with more appropriate facilities and debt write off.CVAs are complex schemes to put together and care must be taken to consider all stakeholders objectives, carefully set out a plan and ensure buy in from creditors.Costs:Our fees usually come from cashflow savings that we can create for your partnership as part of this process. We often take a fee over several weeks and add a success fee if agreed targets are achieved. All fees are quoted in writing.What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.What if neither Plan A or Plan B is suitable?Plan C pre pack administration, or winding up of the companyOf course acquisition by another firm is a possibility too. Will this acquiror pick up all of the liabilities of your firm? Perhaps pre-packaged administration could preserve the business and employment?Call KSA Group's DEDICATED LAWYERS LINE now on
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CVA versus Pre packs – The Great Debate
With H.M. Governments Insolvency Service planning yet another review of the current practices regarding pre-packaged administration sales (pre-packs), this thorny subject once again comes under the spotlight. The Insolvency Service estimates that 25 per cent of all administrations are pre-packs, of which around 85 per cent are sold-on to parties already linked to the company.
ReadSatisfied client exits CVA
Below is a testimonial from one of our clients, having just finished a CVA with the help of KSA. One happy client!I wanted to drop you a quick note to let you know that today I have sent a final payment to Eric Walls and the creditors’ fund, which now completes the CVA process for the company. The company is now in a very different place to when you, Hugh and then Eirlys helped us so much to get through the first few months before the CVA was approved. Having read through some of the testimonials on your website I can only endorse the comments about your team and the fantastic way they listen, help, sort out and restructure the business. I am sure I am not alone in saying that most company owners and directors are pretty battle scarred before they get in touch with you but there is always a willingness to continue the fight for survival. We have, after all, created a business with loyal staff that have mortgages to pay. However, when we sit down and go through a five year plan there is a nagging doubt of whether I can pull the business through the process.What was particularly helpful to me in those early days was the complete lack of judgemental comment and instead, very helpful comments on how to turn around a business and get it back to prosperity. The majority of my company income comes from advertising in our trade journals and PR retainers, the first areas that get cut in tough times. So, even though Eirlys was able to successfully keep our creditors and trade suppliers on side, top line growth was always going to be a problem.I believe we came through the five years by making some major decisions that caused a number of problems in the first place. Our offices were far too big and costly, we had too many staff, and we had been overly loyal to some suppliers such as printers who had been charging too much for their services.Throughout the five years we have not experienced any problems with suppliers, apart from our bankers (with whom we had taken out a business loan that was backed by our houses).This bank has been hopeless and completely useless throughout and I can’t wait to get rid of them. My thanks again to you and the KSA team, we would not be here today without your help, thank you so much. Kind regards
ReadAnother customer safe from administration and in a CVA
A recent customer admitted other potential advisors were pushing for them to go into a pre pack administration, but with KSA's help, this business is in a CVA and will continue trading and returning money to creditors, including paying back a proportion of their £500k of tax liabilities to HMRC.We were sent the following email:All, I just wanted to thank you all for your assistance with the CVA preparation. With 100% of creditors voting in favour this is a testament to your experience and process in putting these together. The last few weeks has been a nerve wracking time and timing has been close to the wire, but the end result means that we are now well positioned to execute our plans going forward to the benefit of all. In deciding to go with KSA we had numerous other providers who were either cheaper or pushing a pre-pack route. You have delivered what you set out and certainly a much better outcome than administration. Marie, a special thanks for your efficient and calm handling of all the issues that have arisen, and Andrew – your “mother of all spreadsheets” will now double as our operating budget for next year. Finally, if you ever have any prospective clients who require a reference, I would be happy to talk with them. Regards
ReadCVA Case Study – Scottish Recruitment Company
One of the directors of a Scottish registered company, trading since 1994 and now trading from premises in Edinburgh, contacted and then appointed KSA in June 2009 to assist with the preparation of a Company Voluntary Arrangement (CVA) to the company’s creditors.The company provides temporary and permanent personnel placements across a number of sectors including industrial, construction & property, manufacturing, technology, scientific and information technology to name but a few.The company mainly operates in the central belt of Scotland but has also provided personnel around Europe, Iraq, and other areas of the world.Over time the majority of the company’s business related to the construction and property sectors, making up approximately 40/50% of the company’s turnover.The company had invested quite heavily at the end of 2007 and beginning of 2008, taking on larger offices and recruiting 17/19 new sales team members. Almost half of the new staff were recruited to focus on expanding markets like house building and consultancy recruitment.During 2008 the company started to feel the early effects of the current economic downturn but similar to other companies the company was unaware of the drastic effect it would have on new business, existing business and also debt recovery.At the end of 2008 the company took steps to reduce costs by making a number of staff redundant and vacating its premises in Glasgow so as to only trade from its premises in Edinburgh. Despite these changes the company was struggling to deal with historical debt of approximately £1.35m owed to unsecured creditors, including approximately £1.1m owed to HMRC.
ReadKSA Group saves 1760 jobs using CVAs
We have done an analysis of all the companies that we have successfully negotiated CVAs for and which have been approved by creditors and filed at Companies House. Since January 2011 KSA Group have "saved" 1760 jobs in these firms.What do we mean by that? Well, prior to the CVA being filed these businesses faced being wound up or being put into administration or liquidation as they suffered under the weight of their debts. The CVA allowed the unsecured creditors to receive a dividend on their debts ranging from 30p to 100p in the £1 and the business to get on with making money and being a useful and productive member of the business community!So what did we actually do? The main thrust is to persuade the creditors that the business is viable going forward. A special thanks to the team in our Berwick Office who do all the creditor liaison in this respect. Our corporate advisors talk to the client's bank, HMRC, trade suppliers, and customers amongst others. We also advise the directors on how they can cut costs to become more efficient using the powerful company voluntary arrangement mechanism.Of course those jobs are just from CVAs. They do not include the work we do with pre pack administrations, trading administrations and informal time to pay deals with creditors.
ReadCVAs in Action – Seminar in Birmingham 18th September
The Seminar on CVAs in Action in Birmingham is officially sold out but there are a few last minute places. Details below. If you can't make it and would like to know more then please get in touch CVAs in action - Free Seminar in Birmingham hosted by Gateley LLP and sponsored by KSA Group CVAs have been in the press recently with Glasgow Rangers and Fitness First both proposing them as waysto rescue and restructure their businesses and even Travelodge are now considering it.We warmly invite you to learn how they work from both the debtor and the creditor's point of view at our Free Seminar. As Gold Sponsors of the Turnaround Management Association (UK) our guests attend for free to this CPD qualifying event.Speakers:Rachael Campbell, Associate Lawyer, Gateley LLP.Turnaround Lawyer.Bryan Green,CEO & Principal, Tnui Ltd.Lawyer, Funder and current President, TMA-UK.Keith Steven,CEO & Principal, KSA Group Ltd.Turnaround Practitioner.Date18th September 2012Time6pm - 8pmLocationGateleys LLPOne ElevenEdmund StreetBirmingham B3 2HJDrinks and refreshments will be servedafterwards so there will be opportunities forsome networking and you can take away our USBToolkit with the hundreds of guides oninsolvency matters.If you would like to come along as a guest of KSA Group please RSVP on020 7877 0050 or email me at robertm@ksagroup.co.ukMore details are available on the TMA (UK) Web site .This is a CPD Qualifying Event/
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