22 August 2023

CVA rescue amid COVID-19 pandemic

Kelly Rouane Senior Manager

Our client (the company) is a driver recruitment agency, specialising in recruitment for truck drivers, particularly HGV Class 1 and LGV Class. At the time of our engagement, they had seven full time employees and engaged up to 95 drivers on a sub-contracting, agency basis.

While they had a number of large contracts in the pipeline, they faced financial difficulties due to their clients (mostly companies hiring drivers and large contractors) not paying on time. This led to the company being unable to meet its obligations to HM Revenue & Customs (HMRC) who, despite the company’s best efforts to negotiate, presented a winding up petition against the company.

The company approached our insolvency practitioners for advice on their position. Following a review of their finances, we assisted the company with preparing a proposal to creditors for a Company Voluntary Arrangement (CVA).

What is a CVA?

A CVA is a legally binding agreement between the company and its creditors, which aims to rescue the company and allows continued trading while dealing with its historic debts over a period of time. 

Employment illustration

Subsequent supervision of the arrangement was then required to ensure that the terms of the arrangement were adhered to. This involved:

  • Monitoring monthly contributions and lump sum payments due to creditors

  • Adjudicating and agreeing creditors’ claims

  • Conducting an annual review of the company’s business income and expenditure, management accounts, balance sheets, and cash flow projections

  • Ensuring compliance with HMRC statutory requirements in relation to returns and payments

  • Reporting annually on the progress of the CVA to creditors, Companies House, and the court

The company’s debts were initially thought to be in the region of £289,624 but after further investigation, it transpired that the debts were in fact £338,573. However, this rescue procedure, and the ability to continue trading, enabled the company to secure the required contracts that would provide creditors with full payment in respect of their debts.

By agreeing to the CVA proposal, not only did creditors receive 100% of the monies owed to them, plus interest, the company was also able to successfully trade on throughout the COVID-19 pandemic.

Had the proposal been rejected, it is unlikely that creditors would have received any payment in a liquidation scenario. This would also have resulted in the company ceasing to trade, with a number of jobs being lost. Thankfully, this situation was avoided and the CVA concluded successfully.

Expert advice is crucial when considering the next steps for your company. If you or someone you know needs help and advice on rescue and insolvency procedures, then contact our corporate insolvency team today.

Kelly Rouane, Wilkin Chapman LLP
Need help?

Contact Kelly to discuss this further.

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