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Magazine publisher CVA Case Study

15 November 2013

People ask how many CVAs that we do are rejected by the creditors at a creditors meeting? Well the answer is very small numbers. History tells me that if the job is done well, the directors work hard and are a little contrite, the creditors are treated fairly and the CVA is well prepared (by us of course) then they will support a common sense CVA.

So what happened to this company? Well the simple answer in this case was the directors failed to tell us about their past treatment of the Inland Revenue and VAT.

The company was fast growing with 2 good titles and small but growing events arm. The MD was a focused lady who we were pleased to work with but her co director (life partners too) was not, in fact he was mostly difficult and obnoxious to deal with.

At all times, from our first meeting right up to the CVA creditors meeting, he insisted that the company was not insolvent because the titles were worth many millions! Yes but there is another key insolvency test, namely 'can the company pay its debts as and when they fell DUE'?.

When we met the board, HMRC had issued a winding up petition, this was for arrears of tax going back 9 months. Secondly, there was a WRIT from a supplier and thirdly the paper supplier refused to supply paper for the magazines! Not insolvent eh?

As we have said before, one of the hard parts of our role is to tell the directors what they don't want to hear. We stated that Mr E changed his tune or the CVA would be rejected. The company was grossly insolvent and the CVA was the best/only way of avoiding being wound up or terminal insolvency. All CVAs are sent to the HMRC special unit called the voluntary arrangement service (VAS). They review the proposals and also take care to do background checks on the company, its directors, shareholders and compliance with tax law.

When we sent the CVA out to creditors and called the meeting, it transpired that the directors (mainly Mr E) abused the PAYE scheme for 7 years and had NEVER filed a VAT return on time! This made the VAS very sceptical about the CVA and whether they were ever going to be compliant.

So at the creditors meeting the HMRC vote was a rejection and the CVA was rejected overall. This was a shock to us as we are not used that at all. But we did learn a very good lesson from this.

Now all clients must fill out our declaration of compliance, we now insist that all VAT returns and tax returns are filed, we research all other companies connected to the directors and any failed companies in the directors history. Then we tell them to comply with us and the law, be contrite and apologetic and then file the CVA. This seems to work and so the moral is comply with the tax legislation (even if you cannot pay the debts) and CVA will be a good solution.

What happened to the company? Well it was placed into administration the day after the CVA was rejected and the "multi million pounds" worth of magazine titles sold for less than £30,000! The new business is trading well now and Mr E is not involved anymore.


Category: CVA

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