IT Consultancy Suffering From Legacy Debts

The Challenge

An IT consultancy company with a turnover of £135K was facing severe financial difficulties due to poor business and cash flow issues caused by carrying a large amount of historic debt. The total unsecured debt was approximately £165K, with HMRC being the majority creditor. The situation escalated when HMRC served a winding-up petition, forcing the director to seek professional help. The company also had an outstanding director’s loan account.

The Solution

The company engaged RMT KSA, who were appointed to assist with a Company Voluntary Arrangement (CVA) in November 2014. A key step was negotiating with HMRC, who agreed not to advertise the winding-up petition in exchange for a court-filed CVA proposal. This bought the company crucial time, necessitating the adjournment of the winding-up hearing to allow for the CVA proposals to be considered by creditors. The CVA proposed a high dividend of 93p in the pound to unsecured creditors over five years.

The Results

The CVA was ultimately rejected by HMRC. Despite the high dividend offered, the rejection was upheld after a request for reconsideration. The most likely reason for the rejection was the large historic debt that the company was carrying. Because the CVA failed, the company was ordered to be wound up at the adjourned petition court hearing, leading to its formal liquidation.