You won't get a company voluntary arrangement approved by HMRC

10 May 2009

To be honest we are getting really angry about the incompetence and arrogance of certain UK insolvency practitioners towards the concept of company voluntary arrangements


In the last month I have heard this ridiculous claim in 4 separate cases/potential clients/banks. 
All statements were from IP's from large firms who frankly should know better. Or if they don't it suggests to me that they simply have never bothered to use a CVA properly or they have followed the daft view that 100% of the debt MUST be repaid in the shortest time possible. Or, being cynical, they wanted the bigger fees and control of administration. 


This is not true, factually incorrect and basically misleading clients, creditors and banks. 
In our long experience it is true to say that the Combined Voluntary Arrangement Service (VAS HMRC) is tough but it is always fair. Indeed the service has an online guide to its approach here 
http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/manuals/insmanual/ins10105.htm
This open and fair approach to CVAs includes accepting well proposed CVAs that offer the best deal possible for creditors. Remuneration levels of directors will be scrutinised and if necessary reduced as a condition of its support. If excess cash is generated by say year 5, they will ask that some of that is paid to creditors. 
All fair enough. 


The VAS does not expect a CVA to offer 100p in £1 in 2 years as many practitioners falsely claim. Indeed the Insolvency Act is not prescriptive about dividend levels or time frames anyway. The framework created by the '86 Act is deliberately loose to allow ANY deal to be put in front of creditors, who decide by majority vote whether to accept, modify or reject that deal. 


This framework highlights the brilliance of the CVA legislation to my mind. 
For proof of this being more than a rant by yours truly, please see an extract from the VAS (HMRC) guidelines below in italics. I have underlined the key points. 


INS10167 - Introduction to Voluntary Arrangements 
A fair and optimum offer is made to creditors
A 'fair and optimum offer is made to creditors' means that there is 
•no unacceptable expenditure 

•the arrangement cannot be improved upon 
•all obligations under the arrangement are achievable. 
Companies need working capital and some leeway for investment to keep them competitive and for contingencies such as bad debts
•saying 'no' to unnecessarily high drawings or personal expenditure does not compromise the rescue culture. 
It simply requires those running a business to adjust their personal expectations to their current circumstances. 
support of a proposal is not dependent upon receipt of a minimum level of dividend.
•Judge each case separately on its merits and the available information. 
If the criteria are satisfied accept it on the basis that saving viable businesses will stimulate enterprise and ultimately generate more revenue. 
Explore arrangement prospects yet remain fair to those who pay on time 

So the next time an insolvency practitioner says, "You won't get a company voluntary arrangement approved by HMRC" or you must pay 100p in £1 in say 3 years", tell them they are wrong.