Midlands Based Subcontractor Facing Winding Up Petition

The Challenge

A company providing subcontracting services to utility companies, with a turnover of approximately £1.9 million in 2009, was in a dire financial situation. The company’s problems stemmed from rapid growth without sufficient capitalisation, a loss-making large contract, and an underperforming management team. These issues led to a build-up of legacy debts and an inability to pay its tax liabilities. The company had previously attempted and failed to secure a “Time to Pay” agreement with HMRC. With an unsecured debt of £640,000, of which a massive 99% was owed to HMRC, the company faced a critical and immediate threat: HMRC had issued a winding-up petition, which could have frozen the bank account and ended the business.

The Solution

In November 2010, the director contacted RMT KSA, and the firm was appointed to assist with a Company Voluntary Arrangement (CVA). The CVA was the core of a comprehensive plan to save the business. RMT KSA immediately negotiated with HMRC, who, after viewing a draft of the CVA, agreed not to advertise the winding-up petition, a crucial step that prevented the company’s bank account from being frozen. The winding-up petition hearing was then adjourned to allow time for the CVA to be finalized and a creditors’ meeting to be held. The company also implemented a number of cost-cutting measures, including reducing overheads and increasing prices to generate greater margins. The CVA proposal offered a repayment of 61 pence in the £1 to unsecured creditors over five years.

The Results

The CVA was a complete success, but not without a fight. Although HMRC initially requested clarifications, RMT KSA successfully addressed their concerns. HMRC then provided their response, accepting the CVA with additional modifications that ultimately increased the minimum dividend payable to unsecured creditors to an impressive 70p in the £1. The CVA was formally approved by the body of creditors in February 2011, and the winding-up petition was dismissed at the adjourned hearing. The company successfully avoided liquidation and was able to continue trading with a structured plan to manage its debt. The CVA’s approval saved 15 jobs and allowed the company to implement a plan to return to profitability. This case is a powerful example of how a CVA can be used to defeat a winding-up petition and provide a viable path to recovery, even when facing a single, dominant creditor like HMRC.