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What happens at a CVA creditors meeting

15th January, 2020
Keith Steven

Written ByKeith Steven

Managing Director


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He has rescued hundreds of companies and helped many of them turn around using CVA or pre pack. Could he help YOUR company?! Call him now 07833 240747

Keith Steven

Table of Contents

  • What happens next?

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?

The meeting is chaired by the advisor or an insolvency practitioner (IP). Creditors are sometimes represented by professionals from other insolvency firms if the debt is substantial. The aim of the meeting is to allow the creditors to question the director’s proposals; however it is NOT a place for settling disputes. The creditors meetings are normally held via video conferencing unless 10% or more of the creditors wish it to be held at a physical location.

At the meeting, the creditors will vote on the proposed restructure of the company debts. If there is a majority vote of 75% by value of the total value of unsecured creditors at the meeting (whether in person or by proxy) vote in favour. A second vote, not including connected creditors, is taken and provided that not more than 50% of unsecured creditors vote against the proposal, it is approved. Remember that the bank or other secured creditors are not affected by this process. For an example of votes at a creditors meeting click here

Directors often worry about the creditors meeting.

However, if the work has been done thoroughly and all the creditors are thoroughly informed of what is happening before the CVA is filed at court, then there is no reason for concern.

In practice, it is rare for creditors to turn up. Instead, if they want to vote yes, they are more likely to send in a proxy. In our CVAs, the Voluntary Arrangement Service (VAS) which represents HMRC, will generally be supportive of viable proposals that are well built and show proper care with attention to detail. Given that the VAS often represents the largest votes, then we ensure they are comfortable with the CVA process very early in the cycle of events. However,  VAS need to be confident that you are going to comply with your obligations.  Therefore a poor record of filing returns on time and indeed even late filing of director’s Self Assessment for tax will dent that confidence. Proper communication with creditors is a vital part of KSA’s strategy for helping you build a CVA deal.

  1. The chairman controls the ability to vote, and provided creditors have been asked to consider a sensibly structured deal, almost all proposals are accepted by creditors.The creditors may wish to modify the proposal – once again, the modifications need to be approved by the majority votes (see above).This is often done by HMRC to ensure future debts are paid on time and future filing of tax returns is done correctly. Occasionally, other creditors may ask for a modification to the proposal.
  2. At the same time as the creditors meeting, the members (shareholders) meeting is held. Members decide whether to accept the proposal as made or modified and a vote of 50% in favour is required.
  3. If both meetings approve the proposal, the meetings close. The chairman must then issue a chairman’s report, within 4 days, to all creditors and the court, stating what happened, who voted and how they voted.

What happens next?

Get on, run the business and make some money. Remember that once the company is in a CVA, the directors have to make it work and keep up any payments to creditors. Two or more failures to pay the dividend will deem the arrangement to be a failure and the company will be wound up. If you are having any problems meeting the payments or there is a change in your circumstances, let the supervisor know as soon as possible. Another creditors meeting could be held with further modifications being put to creditors but be warned they are likely to be less accommodating second time round.

Mercian Cycles To Go Into Liquidation

Derby based Cycle builder Mercian Cycles has gone into liquidation.  The firm specialised in making high quality steel frames with hand made decorative joinery ("lugs" in bike parlance).The company confirmed thr news to the publication road.cc saying: "Mercian Cycles Ltd has ceased to trade, and we have instructed an Insolvency Practitioner to assist us with taking the appropriate steps to place the Company into Creditors' Voluntary Liquidation."Opus Business Advisory Group have been appointed liquidators and said "we will be working closely with the company to help manage a controlled wind down of the business and a smooth transition for stakeholders".The bike company was founded in 1946 and was seen as quite eccentric with its lugs and flamboyant colours.  The firm had quite a cult following in the UK and the USA.However the cycling industry has had a hard time of late due to over capacity following the pandemic when everyone suddenly started to spend money on Bicycles.  Unfortunately, this new found enthusiasm did not last.

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Mercian Cycles To Go Into Liquidation
scottish flag

Winding Up Petititions In Scotland

We are a Scottish registered company, and a creditor has threatened a winding up petition. Is the procedure in Scotland different to that in England? Yes. If a creditor issues a winding up petition your options are even more limited than in England. The reason is to do with the advertisement of the petition. When can a creditor wind up a Scottish company?A creditor is owed £750 and has failed to pay even after having recieved a statutory demand giving 21 days to pay. The court is satisfied that the company is unable to pay its debts as they fall due, or that the value of the company’s liabilities (including contingent liabilities) exceeds the value of its assetsIf the company has less than £120,000 of share capital the petition is presented at the local Sheriff Court. Winding up petitions against companies with paid up share capital in excess of £120,000 are presented at the Court of Session in Edinburgh.To summarise, in England after the Winding Up Petition has been served, advertising cannot take place for seven days. (Please note that for the Petition to proceed it must be advertised no less than 7 days after service and at least 7 days before the Hearing). It is the advertising that can be the end of the company. Banks have a continual watching brief on the Gazette, where it is advertised. Once advertised they will almost certainly freeze the company's bank account, often the end of the company.The reason behind the freezing is logical. If the WUP is ultimately granted, any dispositions which took place after the service of the Petition can be claimed by a liquidator as void, or voidable. This is because the legislation allows the Liquidator to claim back any monies paid out which he or she determines were not in the interest of creditors as a whole. In that event, the bank will be required to repay any such dispositions (payments).The freezing of the account itself is not a legislative requirement as such, it is merely a mechanism used by the banks to protect their position against possible claims by the Liquidator.In Scotland however:The Winding Up Petition dates from the presentation of the Petition at the court offices; when it is lodged. At this point a First Order is given. This First Order is the authority to serve and advertise. At the same time, it is ‘Walled’. This is the damaging part! Walling literally means the the Notice is pinned to the Court notice board for all to see...including the company’s bank! What do the bank do on spotting the walled petition? Freeze the bank account...immediately!Whilst the respondent has 8 days to lodge defences,  there is NO delay period for advertising- the Petition is advertised at the same time as service and, more damagingly, it is Walled immediately. So in this case, if the bank has spotted this (and they will...remember they hold a watching brief on all wallings) and frozen the bank account, how would a director or board of directors manage to pay staff, pay suppliers for on-going stock, or pay lawyers and advisors to help prepare an answer to the petition and a CVA proposal? Sadly the answer is often, they cannot and the company is fatally damaged by this knock out blow and not even make it to the lodgement of answers resulting in an Interim Liquidator being appointed by the Court, leading to Liquidation.One unfortunate side effect of this loss of grace period is that a petition may be issued maliciously and so damage the company. We advise clients in Scotland to lodge a caveat in both their local Sheriff court and the Court of Session.The effect of the caveat is that the court is required to notify the party who has lodged the caveat of the intention to proceed with the Winding Up. Then a Hearing will be fixed. If it is in a busy Sheriff court then the hope is that the Hearing might be a few weeks off. In a less busy court the opposite is the case.  The important point is that some notice is given which will allow directors the opportunity to prepare answers and a proposal to put to creditors for the repayment of debt over time while the bank account is operational. This is obviously vital for the company to continue to trade during this time.A WUP can be the death knell for any company, especially so in Scotland so it is vital to lodge caveats, as a matter of course, and act quickly if you sense a petition may be about to be served. Often there is a solution – the trick is to apply it before a Petition is lodged.So if you feel under threat then DO NOT DELAY and talk to Eirlys Lloyd our expert advisor on these matters on 0131 242 0081 or 08009700539 

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Winding Up Petititions In Scotland
cazoo logo

Cazoo In Administration Move

Update 21st May 2024Cazoo is expected to go into administration today with Teneo being the appointed advisors.  The notice of intention to appoint moratorium expires tomorrow and there appears to not have been a rescue or sale. Cazoo, the online second car dealer, has filed a notice of intention to appoint administrators.  The company was at one point worth £6bn and employed 5000 people.  Cazoo was floated on the US stock market and made its founder, Alex Chesterman, (on paper at least) one of the richest men in the UK.The company boomed as it offered a platform for people to buy cars online and have them delivered to their home.  The pandemic helped their growth and the company spent millions on advertising and sponsorship deals.The company admitted last week that it was burning through £10m of cash a month and that it needed an urgent capital injection to survive.Other factors contributing to its problems has been the rapid fall in second hand car values and the slower uptake of electric cars.The company is not in administration right now but has filed an intention to appoint administrators.  This means that the company has 10 days protection from its creditors, who may be threatening winding up petitions, whilst it tries to raise addition funds or sell the business.Once that time period is up they may be able to extend for another 10 days, subject to approval by the court, but there has to be a very strong reason to do so.Check the links on the right hand side for other questions regarding companies going into administration

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Cazoo In Administration Move
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

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What Is A Winding Up Petition By HMRC or Other Creditor

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