What can we do to protect contracts if we propose a CVA?

25 August 2009

“We want a CVA but we are worried that our intellectual property would be put at risk, do you have a solution"? Of course we do!

Company Voluntary arrangement with hive down!

We are pragmatic experts who will always try to help you find solutions. By using a CompanyRescue 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.

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.

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.