Case study - UK based care company

9 September 2014

The director of this company contacted Keith Steven of KSA to discuss the company’s present financial situation. Then, after a subsequent telephone conversation with KSA regional manager George Davis, a meeting was requested and held at the company’s premises in April 2014. The company operates within the wider care sector.

KSA were appointed to assist the company with a Company Voluntary Arrangement (CVA) in late April 2014.

Turnover for the year to 31th March 2014, was c£681K. 

The company was encountering financial difficulties due to:
- Initially trading within a traditionally low-margin part of the sector.
- Poor financial management
- Failed Time to Pay (TTP) arrangements with HMRC 
- being undercapitalised 
Premises
- The company operates from leased premises.
Employees:
- The company employs 89 staff including the director. 
Bank & Financial facilities
- The company had no loan or financial facilities. 
- The bank provided a current account with no overdraft facility.
Director
- The directors had provided Personal Guarantees (P.G’s) to a creditor. 
Unsecured Creditor debt:
- £136.5K of which HMRC was 93% (the company is VAT exempt)


A Winding Up Petition was served by HMRC. The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court.  The CVA proposed 100p in £1 repayment to unsecured creditors over 5 years.


HMRC provided their response rejecting the CVA. The items of concern cited in their response were:
- That HMRC was by far the majority creditor with some of the debts to HMRC dating back over 3 years: The concerns being had the company preferred other creditors over HMRC and had PAYE/NIC monies been used to bolster the company’s cash flow
- HMRC’s second concern was that the company’s turnover had greatly increased in 2014 however this had not, as yet, translated into profit.
- Lastly, there was a possible additional unsecured liability which had not been validated and had therefore not crystallised. In light of which it had been listed as a contingent creditor for £1.  

HMRC was concerned that if validated the balance would overly dilute the dividend payable tot the unsecured creditors.  However, if validated the creditor may have sought to rely on the personal guarantees provided by the director.


The CVA was therefore rejected at the creditors meeting and the company will be ordered to be  wound a the subsequent petition court hearing date.

Categories: CVA, What is a CVA or Company voluntary arrangement?