CVA as a solution to a company overstretching itself
Richard controlled and managed a plant hire company. Trading was pretty good and so he acquired another similar depot at a distant location so as to expand his geographical reach. This is when his troubles started. The new depot was not profitable and he found he could not properly control the two locations. He was further buffeted by two significant bad debts. Trading losses were eroding his cash and the VAT fell into arrears. HM Customs issued a winding up petition and refused to negotiate. He turned to us in desperation two days before it was due to be heard.
Whilst reaching a compromise with HM Customs was obviously a key objective and a CVA looked likely, we clearly needed to deal with the petition that was already well into the system. As this was the time before the new moratorium was introduced in 2003, we prepared an administration petition and accountants' report, which was lodged at court within 24 hours of our meeting. Although the hearing of our petition was some way off, this alone stopped the winding up petition. Having done so, we talked to HM Customs and persuaded it to accept a CVA with full repayment from profits over five years. This was duly incorporated into a formal document and approved at a meeting of creditors. The administration petition could be withdrawn.
With the protection from creditors, Richard was then able to focus on closing the loss-making depot and re-financing his debts to assist cash flow. After three years of trading successfully in the CVA, Richard found he could raise sufficient funds outside the company and creditors agreed that they should accept 60% immediately rather than wait for the full five years for 100%. The CVA is now being varied to this effect and is being closed.
"If you have created a seemingly irresolvable problem for your company, you can use a CVA to wipe the slate clean and start again within the same company.
CVAs can also be varied if people's attitudes change over time
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