Name:

Email:

Position:

Phone:

Mobile:

Skype Address:

IM Address:

Description:

 

How to stop a winding up petition – use a CVA 18 February 2010
Deek Cooper (about the author)

A winding up petition will stop your company trading unless you take immediate action. By implementing a CVA, winding up action will be stopped and company debts written off.

If you receive a winding up petition or are threatened with winding up, this has serious consequences for your business. Once the petition is issued, your bank account will be frozen and any further transactions undertaken by the company can be overturned by the court.

You must therefore act quickly to prevent winding up action being taken.

Generally you will not have the money to pay the outstanding debt, or by paying, you will jeopardise other aspects of the business. As such, you need to negotiate a payment plan with your creditors.

One of the problems with negotiating with creditors is that it is extremely time consuming and can often be unsuccessful. A company voluntary arrangement is an ideal solution to this problem.

Protection for the company

A company voluntary arrangement (CVA) is a formal agreement with your creditors to settle company debt over a fixed period of time. The company continues to trade without the normal burden of its debts. It pays back what it can afford and any outstanding debt written off at the end of the agreement.

A CVA has considerable advantages for the business:

• Payments to creditors are based on what the company can afford.
• Debt is written off
• All debt collection activities against the company including winding up are stopped
• Negotiations are handled by an insolvency practitioner

To implement a CVA, the company’s creditors have to agree to it. However, when the position of the company is made clear to them by the insolvency practitioner, they normally agree that receiving part of their debt is better than none if the company was closed.

One of the main instigators of winding up petitions is HM Revenue and Customs. HMRC often approve the implementation of CVAs because they know this will lead to a better return than if the company is liquidated.

Advantages for company directors

A company voluntary arrangement also brings with it significant advantages for company directors:

• No upfront investment required
• No investigation of the conduct of directors

The directors will not be required to find a lump sum to put a CVA in place. The insolvency practitioner’s fees are taken from the ongoing monthly payments which are made by the company. 

Because the company is not closed, there is no liquidator involved. As such there is no investigation into the prior behaviour of the directors. This is particularly important if the directors feel that they have allowed the business to trade while insolvent and so could be made personally liable for the debt if it was wound up.

If you do nothing when your company receives a winding up petition or is threatened with one, you may be forced to close. As such, you must take expert advice immediately. If implemented at this stage, a company voluntary arrangement can save your business. 

Agreeing a company voluntary arrangement with creditors will mean that debt is be reduced and written off. Without this burden the company continues to trade and is giving the best chance for success in the future.

Derek is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK. http://coopermatthews.com

Source: Cooper Matthews