CVA and cash withdrawl

[skwdenyer]

I have a client who owes me a not inconsiderable amount of money. Their last accounts (made up to Dec 18) showed £1.2m in cash on the balance sheet. Recent conversations lead me to believe that the bulk of this cash was still present as late as last month. They've just furloughed all their staff.

I also know said client has had all their orders dry up because of the current crisis. I don't believe their problems are fatal to the business, in the sense that assets massively outweigh liabilities.

It occurs to me that they might try to get out of the current situation via a CVA, aiming to take a haircut.

My question is this: if they were to declare a dividend, ah-hem conveniently "backdated" to just before the crisis hit, what would be the position if they then went for a CVA? I realise there are absolute legal issues here, but in the real world such things do happen.

Obviously I could oppose such a CVA, but if (as would be quite likely) I did not have sufficient votes to influence the outcome, are there any actual bars to such a thing? Is there even a mechanism by which I could communicate with the other creditors to point out the convenient timing of the drawdown?

I've never experienced a CVA, on either side, so I'm very unclear as to the mechanisms. Obviously in an actual insolvency situation (administration, liquidation) there are powers available to claw back monies, but does the same hold true in a CVA scenario?

[Pro Bono]

How would you know whether or not they'd declared a dividend?

I don't know why you're bothering with theoretical scenarios, you'd be better concentrating on getting paid.

[skwdenyer]

Pro Bono said:

How would you know whether or not they'd declared a dividend?

I don't know why you're bothering with theoretical scenarios, you'd be better concentrating on getting paid.

I would know when their statement of affairs was put up as a part of the CVA application.

They've asked me for time to pay. This isn't theoretical. Either I commence legal action now, or I give them some time. Any reassurance I would have about time to pay would be based upon their current cash position. If they're able to disburse cash to themselves in the mean time without any penalty then naturally I need to play pretty hardball around getting paid

This question is a part of my risk management of the whole situation - understand the variables before taking further action.

[Turn7]

anonymous said:

[redacted]

LOSE...Its bloody LOSE not LOOSE....ffs

[Countdown]

Its not my area of expertise but I would guess that

(a) A dividend can only be made from distributable profits

(b) This should leave enough assets to cover liabilities, ensuring that creditors get paid out.

If I understand correctly what you're suggesting is that they'll take out the cash, put the Company into administration, and then take the risk that Creditors wont vote to wind it up.. Seems risky from their point of view.

[Countdown]

Turn7 said:

anonymous said:

[redacted]

LOSE...Its bloody LOSE not LOOSE....ffs

Don't loose your temper.

[skwdenyer]

Countdown said:

Its not my area of expertise but I would guess that

(a) A dividend can only be made from distributable profits

(b) This should leave enough assets to cover liabilities, ensuring that creditors get paid out.

If I understand correctly what you're suggesting is that they'll take out the cash, put the Company into administration, and then take the risk that Creditors wont vote to wind it up.. Seems risky from their point of view.

I doubt they'll go for administration, because the scrutiny for such a scheme would be significant, and administrators have to make a report on Directors' conduct AIUI. I was specifically wondering whether a CVA was more lax in terms of that side of things, such that it might seem attractive

[A1VDY]

Turn7 said:

anonymous said:

[redacted]

LOSE...Its bloody LOSE not LOOSE....ffs

With everything going on at the moment and you choose to give someone a grammar lesson?
You knew what he meant, does it really matter??

[Turn7]

A1VDY said:

Turn7 said:

anonymous said:

[redacted]

LOSE...Its bloody LOSE not LOOSE....ffs

With everything going on at the moment and you choose to give someone a grammar lesson?
You knew what he meant, does it really matter??

Yes.
Good grammar, like good manners, cost nothing....

[2 sMoKiN bArReLs]

Turn7 said:

anonymous said:

[redacted]

LOSE...Its bloody LOSE not LOOSE....ffs

Thanks for the advise

[Countdown]

skwdenyer said:

I doubt they'll go for administration, because the scrutiny for such a scheme would be significant, and administrators have to make a report on Directors' conduct AIUI. I was specifically wondering whether a CVA was more lax in terms of that side of things, such that it might seem attractive

Sorry Skwdenyer - I might be missing something....

My understanding was that they have to go into Administration first before a CVA becomes an option. i.e. the options are

Insolvency --> Appoint Administrators --> Continue trading (because the administrators managed to fix things)
Insolvency --> Appoint Administrators --> CV Agreement (the haircut option)
Insolvency --> Appoint Administrators --> CV Liquidation (Creditors think they'll get more back by breaking the company up)
Insolvency --> Appoint Administrators --> Compulsory Liquidation (administrator thinks the company has got no future)

Are you thinking of a Scheme of Arrangement perhaps?

[FazerBoy]

2 sMoKiN bArReLs said:

Thanks for the advise

Very subtle...

[skwdenyer]

Countdown said:

skwdenyer said:

I doubt they'll go for administration, because the scrutiny for such a scheme would be significant, and administrators have to make a report on Directors' conduct AIUI. I was specifically wondering whether a CVA was more lax in terms of that side of things, such that it might seem attractive

Sorry Skwdenyer - I might be missing something....

My understanding was that they have to go into Administration first before a CVA becomes an option. i.e. the options are

Insolvency --> Appoint Administrators --> Continue trading (because the administrators managed to fix things)
Insolvency --> Appoint Administrators --> CV Agreement (the haircut option)
Insolvency --> Appoint Administrators --> CV Liquidation (Creditors think they'll get more back by breaking the company up)
Insolvency --> Appoint Administrators --> Compulsory Liquidation (administrator thinks the company has got no future)

Are you thinking of a Scheme of Arrangement perhaps?

I’m pretty certain a CVA can be proposed by the Directors, not only Administrators. It is available as a route out of administration, but does not require it.

[CarbonV12V]

skwdenyer said:

Countdown said:

Its not my area of expertise but I would guess that

(a) A dividend can only be made from distributable profits

(b) This should leave enough assets to cover liabilities, ensuring that creditors get paid out.

If I understand correctly what you're suggesting is that they'll take out the cash, put the Company into administration, and then take the risk that Creditors wont vote to wind it up.. Seems risky from their point of view.

I doubt they'll go for administration, because the scrutiny for such a scheme would be significant, and administrators have to make a report on Directors' conduct AIUI. I was specifically wondering whether a CVA was more lax in terms of that side of things, such that it might seem attractive

I wouldn't put too much confidence into the idea of scrutiny in the current environment. There are too many adminstrations/CVAs/scheme of arrangement etc. There will be no time or resource to report on directors conduct plus the Government have suspended unlawful trading requirements from the beginning of the month.

I know and work with many companies who have traded profitability until recently and could have quite legitamately withdrawn cash and dividends only to see their businesses fail this month due to the shutdown as revenues quickly disappear.

Think we are all going to take a haircut in the current environment so you just need to minimise your losses and manage your own position.

[sleepezy]

Company can go straight to cva, doesn't have to be via admin at all.

The Supervisor of a cva doesn't report on Directors conduct. Professionally they shouldn't take the job on if they have that level of concern.

Creditors vote on a cva. You can reject if you garner sufficient support. HMRC in particular would take a dim view I suspect. Possibly a condition of positive support is they repay any recent dividend payments.

What you describe is feasible, I've never seem it but that doesn't mean it's never happened.

[skwdenyer]

sleepezy said:

Company can go straight to cva, doesn't have to be via admin at all.

The Supervisor of a cva doesn't report on Directors conduct. Professionally they shouldn't take the job on if they have that level of concern.

Creditors vote on a cva. You can reject if you garner sufficient support. HMRC in particular would take a dim view I suspect. Possibly a condition of positive support is they repay any recent dividend payments.

What you describe is feasible, I've never seem it but that doesn't mean it's never happened.

Thx. I wouldn’t have expected it in the past either, but these are unprecedented times. I’ll continue to negotiate for now I think. Back after 9/11 I got paid by refusing to leave a client’s office until they paid. They fobbed everyone off with promises of jam tomorrow that was, as you might imagine, illusory.

[hutchst]

If the debt is significant, do they have other assets as welll as cash? Is security an option?

[kestral]

skwdenyer said:

I would know when their statement of affairs was put up as a part of the CVA application.

They've asked me for time to pay. This isn't theoretical. Either I commence legal action now, or I give them some time. Any reassurance I would have about time to pay would be based upon their current cash position. If they're able to disburse cash to themselves in the mean time without any penalty then naturally I need to play pretty hardball around getting paid

This question is a part of my risk management of the whole situation - understand the variables before taking further action.

You could try obtaining a part payment from them to demonstrate good faith by both parties.
For you to take all the strain is a bit unfair,they need to play their part and work with you.

[skwdenyer]

kestral said:

skwdenyer said:

I would know when their statement of affairs was put up as a part of the CVA application.

They've asked me for time to pay. This isn't theoretical. Either I commence legal action now, or I give them some time. Any reassurance I would have about time to pay would be based upon their current cash position. If they're able to disburse cash to themselves in the mean time without any penalty then naturally I need to play pretty hardball around getting paid

This question is a part of my risk management of the whole situation - understand the variables before taking further action.

You could try obtaining a part payment from them to demonstrate good faith by both parties.
For you to take all the strain is a bit unfair,they need to play their part and work with you.

Agreed. That’s what I’m working on, just trying to risk manage the situation a bit to trade off goodwill (I’d like to keep them as a client if they don’t go pop) vs risk.

Thx to all for the input.