Stationery Supply company Recieved A Winding Up Petition

The Challenge

A stationery supply company, incorporated in 2000, faced a severe financial crisis. Its turnover had plummeted by half to £170,000 in 2010. This downturn was primarily triggered by poor financial and management advice given three years prior, which resulted in a massive £125,000 underpayment of VAT. When HMRC discovered this, they imposed an arrangement for the company to repay the debt at £1,000 per week. However, a subsequent slump in trade meant the company couldn’t keep up with these payments, leading to significant cash flow pressure. With an unsecured debt of £140,000, 94% of which was owed to HMRC, and a winding up petition issued by HMRC in January 2011, the company was on the brink of forced liquidation.

The Solution

The company’s directors proactively contacted KSA after reading their website, and a meeting was held to explore a solution. KSA was appointed in October 2010 to assist with a Company Voluntary Arrangement (CVA). Despite the immediate threat of the winding up petition, the CVA proposal was swiftly prepared and filed in court on February 1st, 2011. The CVA proposed a dividend of 56 pence for every £1 of unsecured debt. This proposed repayment plan was distributed to all creditors, including HMRC. Recognizing the CVA as a viable alternative, HMRC agreed to halt the advertising of their winding up petition, giving the company a chance to save itself.

The Results

The CVA was successfully approved at the creditors’ meeting in late February 2011. The approval was a remarkable success, as it stopped the winding up petition against the company. This powerful outcome meant the business was able to continue trading and avoid liquidation. The CVA not only saved the company but also protected all six jobs, as no redundancies were required. The directors, who had not provided personal guarantees and had even lent the company £55,000, were able to see the business through its crisis. The CVA provided a structured, legal path to financial recovery, allowing the company to repay a substantial portion of its debt and continue its operations.