MLM Solutions Blog

Can A CVA Save Rangers

2012-02-24T03:40:00.001-08:00

CVAs or Company Voluntary Arrangements are at the forefront of the sports news in Scotland but they are one of the least used restructuring tools in an Insolvency Practitioners toolbox. In Scotland, there are only around 5 every year.

So, what is a CVA? Essentially, it’s a compromise arrangement between a company and its creditors. The company is saying “We’re sorry but we can’t afford to pay our creditors in full. However, we’d like to make you an offer to pay a percentage of our debt and for you to accept that in full and final settlement.” So, essentially, it is a deal between a company and its creditors.

A CVA is contractual in nature but the contract has some peculiar features. It cannot vary the rights of secured or preferential creditors without their consent. Secured creditors are those who hold either a Standard Security over the company’s property or who hold a Bond and Floating charge over moveable assets – debts due to the company, for example. Intellectual property like Trademarks or Brands can also be secured. Preferential creditors are usually employees for unpaid wages or holiday pay.

However, provided the requisite majority is obtained, it is binding on ALL creditors, even those who object to it.

Finally, unlike any other UK insolvency process, the directors remain in control throughout the entire procedure.

So, how would you go about putting a CVA in place?

Having identified that an Arrangement is a suitable option for a client, the first thing you have to do is identify key stakeholders – usually the company’s bank and any other secured creditor. You’ll remember that the rights of secured creditors cannot be varied without their consent so it’s important to get them on board from the outset. So you’d also be talking to any HP and leasing creditors in respect of key items of kit.

The directors need to consult an insolvency practitioner. Why? The IP acts as a ‘Nominee’ and it is the Nominee’s job to put forward the Directors’ proposal to the company’s creditors. You should note that it’s not the IP’s proposal but the directors’ proposal. The role of the IP at this stage is to review the proposal and to put it forward only if he/she considers that it is reasonably likely to be accepted by creditors and to be achievable. The Directors will be responsible for achieving key milestones to make the deal work– whether it be cost cutting, relocation, boosting sales or whatever – it’s down to the company’s directors to deliver.

So what would a proposal for a CVA actually look like and what would it contain? By nature, since the company is asking its creditors to write off some of the money which they are rightfully due, there is a requirement to make full and frank disclosure of the company’s financial affairs. So as well as details of its assets and liabilities, creditors should expect to receive some information about the background to the company and its current difficulties , as well as financial projections – cash flows, forecast P&Ls etc - to allow them to assess whether the company is fundamentally sound or has a reasonable prospect of survival in the longer term.

The proposal is then sent to ALL the company’s creditors, including HMRC, the Bank or any other secured creditor and any HP or Leasing companies. Because the CVA is contractual in nature, creditors are allowed to propose modifications which are voted on at the meeting which is called to approve it. In practice, the IP and the directors would identify the key stakeholders and ensure that they are happy with the proposal and prepared to vote in favour of it BEFORE the meeting.

The CVA is approved if 75% by value of those voting at the meeting vote in favour of it. Votes can be cast in person or by proxy.

In the case of Rangers Football club, it’s likely that HMRC will have a key role to play in deciding whether a CVA should be approved simply because they seem to be a significant creditor. So, besides a proposal which would see a significant payment being made to them, what might they and other creditors want to see in a proposal?

MLM does not work with such large businesses but we do CVAs for smaller companies. So, what would we look for before putting forward a CVA proposal? We’d be looking for a sound underlying business with reasonably dynamic management ready and willing to do whatever is necessary to allow the business not just to survive but to thrive.

We’d expect to see some or all of the following:

Good strategy and good management

• Management remain in control of the business so stakeholders need to have confidence in their ability to deliver
• Is there a business plan in place?
• Is it realistic?

Good business

• Is there a profitable core business?
• Is the problem an isolated occurrence, a one-off event?
• Will key creditors back a rescue plan?

Financial Control and Management Information

• Is there enough cash to meet immediate needs?
• Is there good Quality financial and/or management information?
• Are there realistic budgets and can management stick to them?

Misc

• Any litigation pending?
• How much luck will we need?

CVA is not an easy option. They usually involve some tough business decisions but if the will to survive is strong enough, they’re a great tool to shake off historic problems and face a more profitable and successful future.

Merry Christmas

2011-12-22T01:17:00.000-08:00

We would live to wish all of our valued clients and partners a Merry Christmas and a Happy New Year.

Edinburgh Insolvency Discussion Group

2011-11-11T02:21:00.001-08:00

Antonia McIntyre, an MLM Director attended Wednesday evening's talk for the Edinburgh Insolvency Discussion Group, which was presented by Alasdair Baijal of BBM Solicitors, who discussed the impact of the Bribery Act 2010 on Insolvency Practitioners. Alisdair provides some useful hints and tips to help IP's avoid falling foul of the legislation! Contact Alasdair at agb@bbmsolicitors.co.uk if you have any questions for him! He loves to be put on the spot!!

Personal insolvency within the Finance, Employment and Sustainable Growth portfolio

2011-09-28T07:56:00.000-07:00

Ournew, majority, SNP government has been in place for 5 months now. One of the more interesting allocations –well, interesting to the insolvency community at least – is that while MrFergus Ewing retained responsibility for the development of policy and law inpersonal insolvency, this is now being developed under the umbrella of MrSwinney’s Finance, Employment and Sustainable Growth Portfolio. Mr Ewing is responsible for Energy,Enterprise and Tourism.

Perhapsstrangely, in shifting responsibility from the Justice portfolio to SustainableGrowth, the new SNP government paralleled the position in the Westminsterparliament, where responsibility for all aspects of insolvency lies with theDepartment for Business, Enterprise and Skills. Perhaps this is a sign of a maturing Scottish Government, a governmentnot afraid to acknowledge where Westminster has actually got things right. But has it?

Thepositioning of Bankruptcy within the Enterprise portfolio in England and Walesis a bit of a hangover from MrMandelson’s love affair with all things American in the insolvency arena. The reforms he put in place, actualised inthe provisions of the Enterprise Act 2003, were based on the premise thatentrepreneurism could only thrive if it were supported by a ‘friendly’ or‘soft’ insolvency regime (amongst other things of course). However, our colleagues south of the borderrecognised very quickly that personal insolvency has very little associationwith entrepreneurism or even self employment. It is all about consumerism.

So,would it not be more mature of the Scottish Government to recognise the errorof Westminster’s ways and move Personal Insolvency back into the Justiceportfolio and concentrate on developing a fully internally coherent regime forScotland’s consumer debtors? Or, if ourgovernment genuinely believes that Personal Insolvency belongs in Mr Ewing’sEnterprise portfolio, why not spend some time developing a workable insolvencysolution for all our hard working joiners, electricians, publicans and so on –a Scottish version of the English Individual Voluntary Arrangement (IVA),rather than waste time on further watering down the rights of creditors in theexisting regime?

Business Rescue and Recovery - Strategic Partnerships

2011-09-08T08:55:00.000-07:00

Oneof the frustrations of being an insolvency practitioner is that, although wehave a set of tools which allow us to help distressed businesses, peopleapproach us when the situation has become critical and our options are verylimited.

Whydon’t people get in touch sooner? Well,I suppose most of us would be upset if the undertaker turned up at the doorwhen we thought we simply had a bad cold. At MLM, we want to get the message out that we really are here tohelp. So we’re joining with some likeminded people, all of whom are committed to Scottish business, to make surewe’re armed with more than just insolvency restructuring tools. We’ve got part time Financial Directors,turnaround specialists, HR people who can help you manage a downsizing andwe’re meeting on the 28^th of this month to plan how we can makeharassed company directors more aware of what we can do for them. Watch this space

Rebranding MLM

2011-08-11T06:24:00.000-07:00

MLMis tired of the bad press that insolvency practitioners often get. We didn’t want to be seen as ‘corporateundertakers’ or, even worse, vultures! We really believe that the insolvency profession can add value both tothe economy at national level and to individual businesses facing difficulties– and, let’s face it, there’s quite a lot of them about just now.

Sowe thought about how we could tell people that we are truly committed tofinding practical and workable solutions for owner managed businesses. We started by rebranding ourselves as MLM Solutions. And then we started putting together anetwork of strategic partners who all know what it’s like to run a business. We didn’t want partners who had skills theylearned in books. We wanted people whohad actual experience of running businesses. People like us who know what it’s like to manage cash flow and find newwork. People we like working with andpeople we know have the same commitment to their customers as we do. So now we have partners who can provideFinancial Directors or interim financial managers to manage your through asticky spot. We can put you in touchwith someone who can help you re negotiate the terms of your commerciallease. For development sites, we’reworking with a project manager who has worked on major infrastructure projectsin Qatar as well as commercial property developments in Scotland. We can even help find funding for a businesswhich may have some issues just now but which has real potential forgrowth. We’re really excited about thesedevelopments and would love to get your feedback.