Renewal Energy Company Faces Winding Up Petition

The Challenge

A business in the renewable energy sector was facing significant financial difficulties due to heavy investment in intellectual property and sales that were below expected levels. While the company’s prospects were good, with sales expected to rise rapidly, its cash flow was severely strained. The company was facing a number of legal actions, including a statutory demand, and a creditor owed £70,000 was threatening a winding-up petition. The directors refused to provide a personal guarantee for the debt, which the creditor was demanding. The company was burdened with a total unsecured debt of £195,000, which included £36,000 owed to HMRC. With a bank overdraft of £100,000, the company failed all three tests of insolvency and was at risk of being shut down by a single, aggressive creditor.

The Solution

The company engaged RMT KSA, and their advice was clear: a Company Voluntary Arrangement (CVA) should be considered, but the immediate threat of the winding-up petition had to be addressed first. KSA’s Eiryls Lloyd wrote a letter to the creditor’s solicitors, correctly disputing the debt and stating that the petition was an “abuse of process,” which is a crucial step in such cases. Despite this, the solicitors pursued the winding-up process and informed the bank of the petition, which caused the company’s accounts to be frozen. KSA immediately applied for and was granted a Validation Order to unfreeze the accounts. The judge was scathing of the creditor’s solicitor for their actions. The CVA process also included a “hive down” to create a new subsidiary, which was a strategic move to protect the business.

The Results

The winding-up petition was formally withdrawn, and the company was successfully able to enter into a CVA. The CVA provided a legal framework to compromise the debts, a much better outcome for creditors than a liquidation would have been. The company’s business continues to trade well, and the “hive down” to a new subsidiary has provided a stable platform for future growth. This case is a powerful example of how a CVA can be used to defeat a winding-up petition, especially when a debt is in dispute, and how swift, expert action can secure a Validation Order to unfreeze bank accounts. The case also demonstrates that a company can successfully restructure and return to a viable position, even when facing aggressive creditors and complex legal challenges.