CVA

Using a CVA to realise assets effectively

Bill and his group of fellow unpaid but publicly spirited trustees ran a children's aid charity, which became significantly insolvent through overreaching itself with projects in over 20 countries. Its usual source of fund raising income through peak challenges was badly affected by closure of country areas with foot and mouth. There was a significant reliance on a bank overdraft and whilst the bank was sympathetic to the charity, eventually it had to draw a line. Creditors were pressing and there was no way forward. Feeling bad about letting the beneficiaries down, Bill and his team arranged for the overseas projects to be curtailed or transferred to other charities and had started to place the charity into liquidation when the bank referred them to us.

We immediately identified two main assets and put a stop on the liquidation. We then worked with the trustees as a team to achieve a better outcome. The team of people involved in the fund raising events, including the know-how and event participant database needed to be sold as quickly as possible, bearing in mind the season was about to start and the employees would disperse. We helped the trustees to sell this package to another like-minded charity for a share of future income for creditors.

We then turned to the main charity asset, a database of supporters and contributors comprising some 70,000 names of whom 3,500 paid regular amounts by standing order. Whilst this generated around ?0.5m income each year and was undoubtedly a valuable asset, with Data Protection Act restrictions and the sheer practical difficulties of transferring bank account details for so many people, if would have been highly problematic to sell as an asset in liquidation.

We therefore arranged for a CVA for the charity to cram down the creditors and sold the charity itself, still owning the database income, to another charity operating in the same area for a year's income paid up-front. The CVA was then used as a mechanism for distributing amounts to existing creditors.

As a result, creditors who were not expecting anything were able to receive a worthwhile dividend. The trustees were able to work towards better recovery of creditors, avoid liquidation and preserve their reputation.

"Sometimes transferring the business and assets from an insolvent company is the hard way. A smarter approach is to use a CVA to make a company solvent again and sell that"

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This document explains the relevant position only in general terms. We do not intend it to be used as formal advice about a specific situation, for which you should consult with a qualified insolvency practitioner and not rely upon this document. Portland would be pleased to advise you formally and you should contact one of the directors listed to arrange this. Portland regrets it is unable to accept any responsibility to anybody who seeks to rely on this document.