Winding up petition withdrawn as company proposes CVA

The Challenge

Media Limited, a marketing and database management company with sales of £2.2 million, faced a severe crisis due to a winding-up petition (WUP) from a trade creditor owed over £180,000. The directors, initially underestimating the gravity of the situation, failed to act until the creditor took the drastic step of advertising the petition. The advertisement triggered an immediate freeze on the company’s bank accounts, bringing its ability to trade to a halt. The directors found themselves in a situation where they had lost control of their company, unable to sell assets, propose a creditors voluntary liquidation, or appoint an administrator without an expensive court application. The company was burdened with total liabilities of £679,000, including a substantial HMRC debt of £307,000 and the petitioning creditor’s claim of £372,000. The directors’ inaction had created a complex and costly legal and financial predicament.

The Solution

Referred by LexLaw, the directors sought help from RMT KSA. A “crash team”  worked quickly to prepare a draft Company Voluntary Arrangement (CVA) proposal, detailed financial forecasts, and the necessary statement of affairs in just two weeks. LexLaw, in parallel, led negotiations with the petitioning creditor and another major creditor, successfully obtaining their written agreement to support a well-structured CVA. To unfreeze the company’s bank accounts, LexLaw used the CVA proposal to support an application for a Validation Order in the High Court. The CVA and the Validation Order were critical for regaining control of the company’s finances and allowing it to resume trading. The CVA proposed a dividend of 55 pence in the £1 to creditors, a far better return than the sub-4 pence in the £1 they would have received in a liquidation.

The Results

The company successfully secured a Validation Order from the High Court, which allowed the bank to reopen its accounts and for the business to continue trading. All creditors, including the aggressive petitioning creditor, voted in favor of the CVA, a testament to the quality of the proposal and the high dividend offered. The CVA’s approval restored control of the company to its directors and provided a structured and manageable way to address its debts. The case highlights a crucial lesson for directors: act decisively and early. The directors’ delay in seeking help resulted in a more complex and expensive process, including the costs of the Validation Order. Had they acted sooner, much of this cost could have been avoided. The successful outcome demonstrates that even in a highly pressured and complex situation, a CVA can be a powerful tool for business rescue.