HMRC and CVAs

Company Voluntary Arrangements (CVAs) have been less popular in Scotland than in the rest of the United Kingdom. They are certainly not a panacea but have often been used by retailers where they only want to compromise one class of their creditors; often Landlords (leading to complaints and challenges under the legislation). However, they can be useful when used in the right case.

In brief, the CVA requires an insolvency practitioner to advise on proposing an “arrangement” offering to pay a particular amount of debt to creditors on a particular schedule. The insolvency practitioner acts as supervisor of the arrangement, and, importantly, the CVA has to be approved by 75% in debt value of the creditors. One of the big difficulties for small and medium sized businesses has been that traditionally that HMCR have often been unwilling to vote. If they have voted, they have more often than not, in our experience, voted against proposals.

HMRC have recently provided updated guidance to Insolvency practitioners indicating that in the advent of the new Crown preferential creditor rights, they do intend to exercise their right to vote. They warn this does not mean they will always vote positively for proposals. They further warned that they have experience of proposals effectively testing the water to see what creditors will bear rather than making the best offer the company can afford. They warn that proposals made should be the best the company can make. Insolvency practitioners need, in any event, to be careful about making proposals that simply test the waters because they have their own overriding ethical duties rather than just delivering what company directors may wish.

If HMRC do properly engage with CVA proposals this is likely to be good news for restructuring options, and may result in greater use of CVAs in relation to Scottish companies.

 

If you want to discuss any of the issues raised in this Blog, Eric Baijal would be happy to help and you can contact him on emb@bbmsolicitors.co.uk or speak to him on 01955 604188.