25 August 2022: A company voluntary arrangement (“CVA”), is generally, an insolvency procedure that tries to help a company recover and avoid formal liquidation. It is a flexible “tool” available to insolvency practitioners. BRI has previously provided updates on a CVA being dealt with by our Northampton office, which resulted in substantial dividends being paid to HMRC and other creditors.
Whilst HMRC is typically a creditor in most CVAs, they have not always exercised their right to vote. If HMRC is one of the largest creditors and do not vote, CVAs can be approved (or rejected) by smaller creditors. This could result in a rejection when a CVA represents a much better outcome for all creditors than a creditors’ voluntary liquidation (the alternative outcome compared to the proposed CVA).
Insolvency practitioners have been advised that HMRC will be more proactive going forward in that they will vote on the proposals (the detailed document sent to creditors setting out the terms of the voluntary arrangement). Ministerial commitment has also been pledged in that HMRC will take a commercial approach to voluntary arrangement proposals provided to them.
BRI is committed to rescuing businesses and will assist with the implementation of a restructuring where this is a viable option and represents the best deal for all creditors, together with other key stakeholders. Understanding the requirements of the largest creditors (for example trade creditors, HMRC, landlords and financial institutions) together with the drafting of proposals to deal with creditors’ concerns is a vital part of the success (or otherwise) of this insolvency procedure. BRI fully understands these issues in that each set of proposals are bespoke to the company involved.
Insolvency practitioners together with directors of the company subject to a proposed CVA should welcome the involvement of HMRC in the decision-making process. In our recent experience, HMRC requested their “standard modifications” as a condition of their approval. As these were “standard”, some of their proposed modifications caused a real problem in that they would result in the failure of the CVA. On receipt, BRI contacted HMRC to explain that most modifications were accepted but that some meant the CVA could not be implemented in the way envisaged. In this particular case, it was forecast that creditors’ debts would be repaid in full. Our telephone conversation was followed by a detailed email setting out the reasoning why certain clauses should be deleted and the proposed amendments to other conditions. HMRC effectively accepted the validity of these arguments and submitted their revised modifications on this basis, which meant that the CVA was approved by a number of creditors.
If your company is struggling financially, please take advice early. BRI provides a free initial no-obligation meeting to discuss bespoke solutions for both you and your business.