Midlands Solicitors’ Firm Saved By CVA After HMRC Winding-Up Petition
A long-established solicitors’ firm has been rescued by a Company Voluntary Arrangement after HMRC presented a winding-up petition over substantial historic tax arrears.
The company is a Solicitors Regulatory Authority (SRA) regulated law firm with a strong local reputation and a long history of providing accessible legal services to individuals and families. It employs 23 people and has annual fee income (turnover) of more than £1.2m.
However, the firm had been badly affected by a combination of Covid disruption, regulatory changes in the legal sector, over £300,000 of bad debts and rising costs. The business had historically been heavily exposed to low-value road traffic accident claims. Covid lockdowns reduced the number of claims being generated, and subsequent changes to the recoverability of legal costs made much of this work far less profitable.
The position was made worse when several commercial partners became insolvent, leaving the firm with substantial unrecovered fees on completed work. At the same time, overheads such as rent, wages, insurance and professional costs continued to rise.
This created severe cash-flow pressure. Historic VAT, PAYE/NIC and corporation tax arrears built up, and HMRC eventually presented a winding-up petition against the company on 12th February 2026. The winding up hearing was set for April 1st 2026. However, the director did not learn of the petition from HMRC, but from calls from “debt advisors” offering their services.
After reading our expert guides on www.companyrescue.co.uk the director contacted Keith Steven of RMT to seek guidance on the options available to the company, given a winding up petition had been issued (but not advertised). KSA Group (now RMT) has over 30 years of practice in building leading edge CVAs and has worked with more than a dozen law firms. For example, we wrote the first CVA for a LLP law firm back in 2008. For more information see our sector page. https://www.companyrescue.co.uk/sector/law-sector/
The Challenge
The company was under immediate pressure from creditors. HMRC had presented a winding-up petition, with a first hearing listed. If the petition had proceeded and been advertised, the impact on the business could have been extremely damaging. For a firm of solicitors, the position was especially sensitive. The business is regulated by the Solicitors Regulation Authority (SRA), so the restructuring strategy had to consider not only creditors and employees, but also client file protection and the board’s regulatory obligations.
The underlying business was viable. The company had already begun diversifying into more sustainable areas of legal work, including housing disrepair, commercial debt recovery, data breach claims, and industrial disease work. It had also entered into a new marketing arrangement, which had generated a significant pipeline of new instructions.
The problem was timing. These new workstreams would take time to mature and convert into cash. The business needed urgent breathing space, while a formal restructuring plan was prepared.
The Solution
RMT advised that a Company Voluntary Arrangement (CVA) was the best option to preserve the business, protect jobs and maximise returns to creditors.
Given the need to control bank and client accounts and the risk that the petition would be advertised – leading to the likely closure of the firm’s bank accounts – RMT advised that specialist applications to the Court were required.
We introduced the client to Rabby Fozlay of New Square Chambers to assist with the application for an adjournment of the hearing AND an application for a Validation Order which was made on 2nd April 2026 in the High Court of Justice Business and Property Court.
A bank will USUALLY freeze the account of a company that has had a winding up petition served on it. This is because Section 127(1) of the Insolvency Act 1986 (IA 1986) provides:
“In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s members, made after the commencement of the winding up is, unless the court otherwise orders, void.”
https://www.companyrescue.co.uk/guides-knowledge/guides/what-is-a-validation-order-3946/
Urgent action was taken regarding the winding-up petition hearing too. The company applied to the court for the first hearing of HMRC’s petition to be adjourned to 12 June 2026, allowing time to prepare and put a CVA to creditors. The application also sought to prevent advertisement of the petition before 27 May 2026, helping to protect the business while the restructuring work was carried out. A second adjournment was also obtained.
The SRA regulator was informed about the company’s intention to propose a CVA and was kept informed weekly, as the proposal progressed. RMT worked with the company to prepare the CVA proposal, financial forecasts and statement of affairs. The proposal was based on the company continuing to trade, developing its new workstreams and making structured monthly contributions from future profits.
The CVA proposed total contributions of £540,000 over five years. The payments were staged so that contributions increased over time as the restructured business stabilised.
The Outcome
The CVA was approved by creditors at a virtual meeting held on 9 June 2026.
HMRC voted in favour of the CVA, subject to modifications. Its voting claim was £904,914. One creditor, with a claim of £12,190, voted against. Overall, the CVA was approved by 98.67% by value of voting creditors.
The approval of the CVA allowed the company to avoid immediate liquidation and continue trading. It preserved 23 jobs and gave the business time to complete its transition away from lower-margin personal injury work into more sustainable legal services.
The CVA also offered a significantly better outcome than liquidation. In a terminal insolvency, HMRC’s secondary preferential claim was estimated to receive only a very small dividend. Under the CVA, HMRC was forecast to receive approximately 67p in the pound as a secondary preferential creditor.
Although ordinary unsecured creditors were not expected to receive a dividend under the base proposal, the CVA included an annual profit ratchet. This means that if the company performs better than forecast, additional contributions may be paid into the arrangement.
This case shows how quickly directors need to act when HMRC presents a winding-up petition. It also demonstrates that a CVA can work even in a highly regulated sector, provided there is a viable underlying business, a credible restructuring plan and proper engagement with key stakeholders such as HMRC and the SRA.
We would like to thank Rabby Fozlay of new Square Chambers for his expertise in drafting the applications for the Adjournments and the Validation Order and greatly assisting us with our client.
If your law firm is in serious arrears with HMRC liabilities, please do get in touch as a CVA may be an appropriate solution to restructure the debt, the business and its cost base.
