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How to use a Company Voluntary Arrangement to tackle a Winding Up Petition


We were consulted by the directors of a company, which was subject to a winding up petition, but which had sold its shares in a wholesale newspaper distributor to a third party. CVA to avoid winding upUnfortunately, the company had not received the full purchase consideration and £2.2m was left owing. Subsequently, the purchaser was placed into Administration and it was anticipated that the unsecured creditors would receive dividends of between 14.1p and 24.7p in the £.

The company that consulted us had liabilities to its bankers of £120k, £25k owing to  HM Revenue & Customs and other creditors amounting to £87k. From the information that we were presented with, it was clear that even if the company only received dividends at the lower end of the estimate of 14.1p in the £, there would be sufficient funds to pay all of the creditors in full.

The biggest issue that the company faced was the timescale for the payment of the dividends from the company that had been placed into Administration as HM Revenue & Customs (HMRC) had issued a winding up petition against the company.   

How we tackled the winding up petition

We considered the options available to the company, including a Members’ Voluntary Liquidation (MVL) (a solvent liquidation) but this was not possible as the dividends were expected to be paid over a period of four years and a MVL requires the company’s liabilities to be paid in full within a period of twelve months and this was not possible.

The alternative was a Company Voluntary Arrangement (CVA) which afforded the company the time to allow the dividends to be received and for the creditors to be paid in full.

We corresponded with HMRC in relation to its winding up petition and we were successful in obtaining its agreement to the dismissal of the petition provided that the other creditors agreed to the CVA.

The CVA proposal was presented to the creditors and members and it was accepted by all which resulted in the winding up petition being dismissed.

After our appointment we corresponded with the Administrators in relation to the payment of the dividends and within two years from the acceptance of the Company Voluntary Arrangement we had received two dividends which provided sufficient funds to discharge the claims of all the creditors in full and also allowed for the surplus funds held in the CVA to be returned to the company which enabled a distribution to be paid to the shareholders of the company. The CVA was deemed to be successfully implemented and all debts were deemed to be discharged.

This Company Voluntary Arrangement demonstrates the following important points:-

  •  Even when a winding up petition has been presented against a company, it is possible to use a CVA as an alternative to Liquidation.
  • A Company Voluntary Arrangement can be used when a company is no longer trading.
  • A CVA can be used when there are sufficient assets to pay creditors in full as an alternative to a Members’ Voluntary Liquidation.

 

For more information on how a CVA can help your business download our guide to the Company Voluntary Arrangement Process, or view the following relevant pages:

Sandie Williams By Google+ |
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