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General HM Revenue & Customs, VAT & PAYE Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

A Winding Up Petition Due to HMRC Arrears Need Not be the End

In early 2010 HMRC (Her Majesty’s Revenue & Customs) served notice for a Winding up Petition against a small trading company. The company had ignored HMRC for three years and had not submitted accounts for three years, not since 2007.  A director attended the winding up hearing in court unrepresented.  He said he was trying to reach agreement with the Revenue and was granted 3 weeks stay of execution.
During the three weeks the company sought our help and experience of turnaround and insolvency, to advise on restructuring options, help develop and implement a rescue plan and also help manage the court process.
After a business review, we concluded that it was possible to buy some time to allow the company to be restructured. We first recommended that a barrister should represent the company at the adjourned hearing.  The barrister successfully sought a six-week adjournment to give time for a rescue plan to be put in place, including proposing a Company Voluntary Arrangement (CVA) for approval at a meeting with creditors. This strategy was achieved and at the third hearing the petition was dismissed.
Winding-up petitions are generally used for two purposes:
They may be used as a final attempt by a legitimate creditor to force the debtor company to respond following previous failed attempts to contact them to try to agree payment terms for the outstanding liability.
They are also used to bully a debtor company into settling an outstanding liability, whether disputed or just to get paid before other creditors.
This second reason is often an abuse of process, where the courts are easily deceived. Procedure in court is often key, especially when experienced creditors who know how to play the court ‘game’ use barristers to deal with innocent directors doing their best to represent the company without expert advice.
Winding up petitions in themselves don’t mean that a company is insolvent but they do indicate underlying issues that have not been addressed. The issues can include a lack of cash to pay bills on time, being unaware of legal process, or a dispute that has been ignored or spilled over into frustration.
The courts are aware of this and tend to be lenient towards directors who ask for time to resolve the petition by granting an adjournment. However, their attitude hardens if, at the adjourned hearing, it is shown that the director has failed to fulfil the undertaking given at the earlier hearing.

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General Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Company Voluntary Arrangements Offer Scope for Saving Insolvent Companies

A CVA (Company Voluntary Arrangement) is a powerful tool for restructuring the liabilities of an insolvent company, but it does not, in itself, save the company unless the business is viable.
It is an agreement between an insolvent company and its creditors. Therefore a thorough business review is also needed to support the CVA by establishing that the business can be profitable in the future.
The arrangement is a legal agreement that protects a company – essentially giving it some time or a breathing space by preventing creditors from attacking it.
It allows a viable but struggling company to repay some, or all, of its historic debts out of future profits, over a period of time to be agreed, and allows the company’s  directors to stay in control of the company.
CVAs allow a company to improve cash flow quickly, by removing pressure from tax, VAT and PAYE authorities and other creditors while the CVA is prepared. They can also be used to terminate employment contracts, leases, onerous supply contracts with no immediate cash cost.  It is a relatively inexpensive process.
A company can be protected from an aggressive creditor while a CVA is being proposed and constructed. It can stop legal actions like winding up petitions. In case law, providing a creditor has less than 25% of the overall debts of the company then they can be required to consider the proposal even when a winding up petition is issued.
Ultimately it is also a good arrangement for creditors as they retain a customer and receive a dividend on their debts, which might otherwise be written off in the event of liquidation.
However, it is not a do-it-yourself option for a struggling business but should only be entered into with the help and guidance of an experienced business rescue adviser with the tools and knowledge to help turn around struggling companies.