A CVA CAN POTENTIALLY DEAL WITH CONTINGENT EMPLOYEE REDUNDANCY LIABILITIES MORE EFFECTIVELY
David and his family were seeking a sale of their precision engineering business that had been started by his father in the 1950s. Many members of the workforce of 80 had been employed for 20 years or more but sadly with increasing competition from overseas, there was simply not the sales demand to keep them occupied. With the trading losses and pressure on the overdraft, there was urgency before the company was forced into liquidation.
David felt confident that there was one specialist service that was profitable and would be of interest to a buyer, indeed he had already talked to a competitor who was keen to take the facility over to complement his own offering, making an attractive offer to do so. However he required at most 20 of the existing employees and was deterred by the risk of incurring the significant redundancy cost under TUPER for which he was seeking sizeable retentions from the offer price.
It is always possible in these circumstances to place a company into a formal winding up, persuade the insolvency practitioner to make redundancies and then offer the slimmed down business for sale. This rarely avoids altogether the risk of a depressed price. In this case, the buyer preferred to work with David to make the redundancies, then use a CVA to capture the resulting claims (that were anyway subsequently processed through the government guarantee scheme) and the buyer acquired the company still in CVA in return for a cash injection to creditors.
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