Please visit for confidential help and insolvency advice or email

Friday, 28 August 2009

Double dip recession is certainty, not just for UK

The shocking business investment numbers released yesterday give the lie to the "green shoots myth" for business.

Investment by businesses contracted on a quarter-on-quarter basis by its largest amount since 1985 and its looks like the annual decline this year is likely to be about 18 per cent — the biggest fall, outside wartime, for more than a century.

With that backdrop I cannot see a big recovery or even a small recovery in the economy. We have been saying for some time that companies, to survive the recession, have been cutting costs, reducing employment and now its clear they have also cut investment.

With 180,000 companies not paying PAYE and VAT on time (to survive cashflow crises) it is clear that SME businesses are having to "hunker down" for worse times ahead, by cutting investment, costs and employment.

Alongside consumer tax rises, next year we will see the new Government cut costs, public sector employment and investment too. Smart boards are already planning for that and cutting their cloth to fit. Coupled with falling investment as employment falls, less money will be spent by the consumer, so service sector and retailers in particular will see growth grind to a halt again after a recent rise.

So will this lead to the double dip recession or W shaped recession. Nothing is ever certain but that is what I am thinking as each month goes by.

So what of other countries? The rise in GDP in Japan is interesting. Much of this is probably restocking by companies, remember Japanese manufacturing collapsed last year. So good news for Japan ahead? NO.

This week the worlds largest car manufacturer, Toyota, decided to close a US plant and mothball two production lines (one in Britain), this is the first time in its history it has taken such actions. Does the board of Toyota see growth ahead?

Fujitsu announced 1,200 job losses in the UK . This after shorter working hours did not work in the UK. Falling revenues were to blame. No growth there then.

France and Germany also announced growth in Q2 of 2009. I also think this was driven by restocking and the bringing forward of car sales for example. Ambrose Evans-Pritchard of the Telegraph's recent article also points out that Eurpoean credit contracted recently (ie did not grow).

"We should not succumb to optimism that everything has been overcome. The whole world is in recession together and nobody alone can export their way out of the downturn. The recovery cannot last unless there is rise in global demand, and jobs are created, and there is no sign of that."

"The rebound in Germany and France is not sustainable. The state has stepped in to compensate for the private sector. As long as economic growth relies on the state, you cannot talk about durable recovery."

So lets wait and see, but it looks like a fall in GDP is ahead and it will be late 2010 before meaningful recovery in the major economies and then I think growth will be very sluggish.

Wednesday, 26 August 2009

Company Rescue Newcastle Open for Business - NEW WEBSITE

KSA Group has offices in Gateshead and Northumberland as well as our London and Birmingham offices.

We know many of our friends and accountancy contacts want a dedicated web site for Newcastle, Sunderland, Gateshead, Middlesbrough and all North East based business and their advisors.

We are delighted to launch for rapid advice for all struggling North East companies.

With simple to follow guides to company voluntary arrangements, administration and pre-pack administration, and creditors voluntary liquidation its the first place to start when looking for help.

Our new site also features a Flowchart and guides section. All guides are FREE to download.

If you are an advisor to a strugggling company, please contact Keith Steven on 07974 086779 or Eric Walls on 0191 4823343.

New Liquidate My Company Web Site Launches Today

After a revamp and a tidy up we have relaunched our dedicated web site for those directors (or advisors) looking for information on closing their company down.

Written in Plain English this site has been completely revised and is now easier to use.

Please visit for further information.

Visit now to learn all about wrongful trading, creditors voluntary liquidation, compulsory liquidation, liquidation flowchart, London Liquidation.

If you would like to link to this or any of our sites, please contact Keith Steven on 07974 086779 or

Tuesday, 25 August 2009

What can we do to protect contracts if we propose a CVA?

“We want a CVA but we are worried that our intellectual property would be put at risk, do you have a solution"? Of course we do!

Company Voluntary arrangement with hive down!

We are pragmatic experts who will always try to help you find solutions. By using a CompanyRescue CVA we can restructure viable but distressed companies. Sometimes that requires solving complex problems that can mean a "plain-vanilla" CVA is not workable. So we have used the following methods to address such complex scenarios.

As ever this is only a general guide, we cannot cover every scenario, so if you have a question or problem talk to us soon.

What is a Hive Down?

An asset, or the whole business can be hived down to a newly formed subsidiary of "Topco". Let's call this "Bottomco". It has a new clean balance sheet, no existing liabilities, but of course, no credit rating.

The board of Topco resolves to sell some or all of the assets to its subsidiary Bottomco and the consideration for this transfer is the shares in Bottomco, or cash payment can be made. Perhaps Bottomco could raise new funds to achieve this. The providers of such monies should consider taking appropriate security and or the bank debt in Topco can be "novated" down to Bottomco.

Topco is now an insolvent company, with modest or zero assets other than the shares held in bottomco which are in effect not worth anything much.

Topco can then enter a company voluntary arrangement to repay its creditors (generally not including it's secured creditors) say 30p in £1 over 5 years, or 25p in £1 in 3 months. Bottomco may then pay this to Topco in consideration for the release of the shares.

The supervisor of the CVA can take a charge over the company and its assets (shares in Bottomco) until the CVA contributions are paid over.

After the CVA ends Topco could be wound up or left as holding company for example. The people involved may buy the shares from the liquidator after valuation.

This process avoids what is known as "transaction at an undervalue" which is a breach of s238 Insolvency Act 1986. It is relatively simple in concept but legal advice is essential to avoid personal liability.

What is a Hive Across?

An asset, or the whole business can be hived across to a third party company in consideration for money or shares. This is more complex than a hive down and requires careful planning and legal advice to avoid "transactions at an undervalue" which is a breach of s238 Insolvency Act 1986. Legal advice is essential along with creative advice from CVA experts.

KSA works with one of the UK's top insolvency lawyers to ensure that a CVA with a Hive Down, or a CVA with a Hive Across mechanism are well conceived and designed, properly structured, and powerfully executed.

If this sounds of interest call Keith Steven on 0800 9700539 or 07974 086779 now.

Landlords back Focus DIY CVA

Very interesting and innovative CVA accepted by landlords. See good article from British Property Federation here....

See Daily Telegraph Coverage here...

A company voluntary arrangement is a powerful restructuring tool for retailers, manufacturers and service companies with cashflow problems.

See here for a case study of a CVA that KSA Group led last year.

Monday, 24 August 2009

Focus DIY - The Times writes good article on CVA proposals

Focus DIY CVA creditors meeting is held today (24th August). In the the Times page 39, Marcus Leroux and Rebecca O'Connor have written a good article about the CVA, the background with regards to landlords and creditors and the voting procedure.

This CVA (click for guide) is proposing that the company exits 38 stores, that are closed. The other 180 landlords will be paid full rent but will have to accept monthly payments in arrears. Given that landlords represent 90% of the voting creditors, it is likely that the 38 landlords who are seeing their leases determined, will not be able to vote down the 180 others whose store leases continue, albeit with variations.

The Focus CVA will see leases for empty stores terminated with two payments equivalent to six months’ rent. The DIY chain has 180 stores still trading with the 38 closed outlets costing £12 million a year in rent. While the payout is less than the lease values, it’s more than they would get if the firm went under.

The retailer has also agreed to pay empty NNDR rates on the closed stores, which would provide substantial cash savings for the landlords while they find alternative tenants.

The firm’s secured lenders, HBOS and GMAC, will grant a two year extension to the company’s £50 million revolving credit facility, which is due to expire in December.

This will be another step forward in the pragmatic use of CVA's to restructure debt and leases. The most important feedback that I have seen is that the advisors and the company have both driven this CVA by talking to key creditors about their proposals and gaining a consensual majority approach. Common-sense applies in other words.

This is a key part of our approach to ALL CVA's that we advise on. Talk to the key stakeholders, creditors and build on our initial strategy around those conversations

Friday, 21 August 2009

The recession is nothing compared to a CVA! Good article in "Real Business"

Interesting if factually incorrect article !

It is called a company voluntary arrangement, not "creditors voluntary agreement". It is NOT approved by court, it is approved by creditors.

I admire Richard and his team for sticking it out and getting through the company voluntary arrangement early.

It seems he had little support from the financial sector, them blamimg the company for being in CVA is pretty rich when much of the financial sector was in the throes of boom and a spectacular bust.

I am supportive of the HMG's plans to increase the number of CVA's by providing the ability for "super secured lending" into CVA companies. Hopefully, the current consultation period will lead to this being introduced, (parliamentary time permitting).

This will allow new lending to be put ahead of the bank and other debts. Thereby helping the new lender to secure its lending.

There are tremendous opportunities in the UK for small banks and finance houses to provide financial products to people like Richard. CVA's are the best insolvency tool in the world in my view.

What it needs is for HMG, the insolvency profession, banks and professional advisors to recognise that a company proposing a CVA is determined to get money back to its creditors. Morally and financially they MUST support the hard working directors who do this (and don't simply run away from the debt). When pre-pack administrations, liquidations and receiverships are rising fast, I say hats off to Richard and his baord of directors who (like many of our clients) are driven to pay back creditors.

Wednesday, 19 August 2009

End to the Credit Crunch?

My last post talked about the Bank of England stating that £50bn extra was still required to bail out the economy. Well it seems that the Governor thought it needed more than that! It seems he voted for £75bn extra (total £200bn) and was defeated by the majority going for a total of £175bn.

What does this tell us about the credit problems out there? That there are great strides of progress being made, or that the markets are still locked up?

The news today that Bundesbank is preparing for a second credit crunch in Germany

is even more worrying.

Friday, 14 August 2009

Bank thinks economy has not yet bottomed out. £50 billion more needed!

Those green shoots are springing up in the eyes of estate agents and the property world. Prices are rising they say, the recovery is well under way.

In the real world, the Bank of England seems to thinks otherwise. Interest rates have been kept to 0.5% and a further £50bn needs to be pumped into the economy through printing money, sorry "quantitative easing".

In a statement, they said that the UK recession "appears to have been deeper than previously thought" but the pace of contraction has moderated and business surveys suggest that the trough in output is close at hand."

So the bank seems to think the recession is nearly near the bottom. But like the bank, I think real growth is some way off yet.

BUT if you are an economist for Goldman Sachs you have already decided the recession has ended and growth under way !

See the comments below from the Evening Standard last night'Britain's+worst+recession+in+living+memory+is+over'/

Jim O'Neil chief economist at Goldman Sachs, said the country had pulled out of the financial crisis and the economy was already growing again.

As he spoke, the FTSE 100 hit a year-high as optimism spread through dealing rooms. By mid-afternoon it had fallen back slightly but was still up 30 points at 4,746.

Surely he doe not have a vested interest in driving markets up does he? Remember Goldman Sachs benefits from movements in markets!

Tuesday, 11 August 2009

New blog link... Businesses for Sale

I have dealt with Robert Moore at Business Sale Report for many years. You can read his blog here

I have added his blog to my favourites list.

If you have a business for sale or are looking to acquire one, then this is a good service to use and a good place to start.

Cattles Invoice Finance Finds New Home

Good to hear that the good guys and gals of Cattles are now looking forward to a new home, with an announcement yesterday that Anacap Financial Partners has purchased the invoice discounting/ factoring company for £70m.

I had predicted that Cattles IF would find a new home and break away from the distressed parent Cattles plc which has had its shares suspended since April over some financial irregularities and the sacking of much of its executive.

According to a press release we received yesterday, from Cattles IF, its business as usual and the Times reports that the sale should be completed by September.

Having worked with them for many years, we wish the team at Cattles IF (soon to be renamed?) all the best in the future. They have a solid understanding of insolvency, turnaround and company voluntary arrangements (CVA's). We have a number of long running mutual clients and hope we can do many more deals in future.

Monday, 10 August 2009

Company Voluntary Arrangements for LLP's

Remember if a business trades as a Limited Liability Partnership and has serious cashflow problems, onerous leases and too many employees equating to serious risk of failure, then company voluntary arrangement is a powerful tool for restructure.

This is suitable for solicitors firms, accountancy firms, venture capital/ private equity investment firms and any viable business trading as a LLP.

Call Keith Steven now for further details: 07974 086779.

In the next 3 months we will be taking part in a seminar/conference to review the CVA process for LLP's and what can be learned from the experience we had earlier this year.

NB: if you are interested please send Keith Steven an email.

Ashes catastrophy!

There was I hoping to watch the ashes test match on Saturday and Sunday and what happens? Well a hammering for England is the only polite word to describe it.

So much of a cuffing was it, that I had to spend the day cutting hedges for her indoors on Saturday and I then went to work Sunday.

She of course was highly delighted and now has a neat and tidy hedge up our drive. It is 40m long and up to 4m high in places.

Today, I am struggling to walk with a stiff leg and sore back. Must be getting old! See a day in front of the telly would have done me no good at all, she says!

Now, it is all down to the deciding test match, hope we can find 6 batsmen before then? At least all our hedges are cut now and I may get to watch some of that decider.

Thursday, 6 August 2009

Pressure on HMRC Time to Pay Deals?

After my blog noted that nearly 180,000 companies are spreading their tax and VAT payments using the HMRC time to pay scheme (TTP) an article has appeared today in the telegraph. Some insolvency practitioners and lawyers are questioning this scheme asking if its encourages insolvent companies to continue trading.

Well yes it does! Of course the terminal business should not continue to trade but those suffering from debtors not paying on time, slower sales are not BUST business. Remember the Government has actively encouraged a company rescue policy for many years and does not want to see unnecessary liquidations and closures. So the scheme is clearly trying to underpin that aim. Of course some companies will abuse with 2, 3 or even more TTP deals.

My own view is that "2 strikes and you're out", should apply. If the company cannot keep up with two deals, it should seek more radical solutions like CVA, liquidation or administration pre-pack.

Below is the Telegraph article, note the IP calling for a published register of "offenders"!

HMRC given green light to push ahead with tax help scheme

Lawyers have given the all-clear to HM Revenue & Customs (HMRC) to continue its "time to pay" tax scheme, amid complaints that the Government is in danger of encouraging companies to continue trading when they are insolvent.

Published: 4:45PM BST 03 Aug 2009

The scheme aimed at helping to ease money pressures on businesses during the recession allows companies to delay PAYE and VAT payments. So far HMRC has approved 177,000 requests involving more than £3bn in taxes. The total includes 23,000 cases where HMRC has agreed a second reprieve for £320m in tax payments.

HMRC says more than 90pc of what it expected to receive has been paid. Around 60pc of the arrangements cover delay periods of up to three months.

Insolvency practitioners have been questioning whether the scheme is putting other businesses at risk.

Andy Wood, a partner in Sheffield-based The P&A Partnership, while welcoming the support for business, says it is potentially allowing thousands of technically insolvent businesses to continue trading. He wants HMRC to publish a register of all businesses benefiting from the scheme to allow suppliers to decide whether they should consider trading.

HMRC acknowledges that it has "limited discretion" in operating the scheme but said that after testing the legal framework it is satisfied that the programme is being "appropriately managed".

An HMRC spokesman said: "HMRC is always ready to enter into realistic arrangements to give a business time to pay the tax it owes. But there will be instances when a business is no longer viable and in those cases HMRC has a duty to take the appropriate action to recover as much of the debt owing to it as it can. These actions are always a last resort."

So will the HMRC continue its largess or will it tighten up and go for my two strikes and you're out approach?

Wednesday, 5 August 2009

Focus DIY CVA - copy of proposals

FOCUS DIY CVA proposal: click here for a copy of the Focus DIY CVA proposals. Be prepared for a long read! A good example of using CVA to exit property leases. If it works for a national plc it can work for you, talk to Keith Steven our lease /CVA expert on 07974 086779.


See the foot of our detailed CVA guide page for the PDF copy of the proposals

Tuesday, 4 August 2009

Focus DIY Proposes CVA

Another large retailer using CVA to kill off "dark leases" (or non performing stores to you and me).

Call Keith Steven to learn how this works, and how to do it better than the big stores! 07974 086779

...thanks to The Times of 5th August for the article below!

...thanks to Keith Steven for this CVA experts Guide! Click here

Focus DIY calls on landlords to support deal

Marcus Leroux, Retail Correspondent

Focus DIY will outline details today of a vital restructuring deal to secure its future and urge landlords to back its proposals in a vote later this month.

Focus wants to enter a company voluntary agreement (CVA) sic (its actually a company voluntary arrangement Marcus, read your law!) with landlords, under which it will dump cash-draining closed stores. Landlords of its closed stores would receive two lump-sum dividends in return for losing rent.

The company is likely to fall into administration unless it receives the backing of 75 per cent of its creditors for the CVA. If landlords — the creditors most likely to oppose the CVA — reject the deal and Focus falls into administration, the company would probably re-emerge under its present management through a pre-pack deal. That would leave the landlords of closed stores empty-handed, Bill Grimsey, Focus chief executive, said.

The 38 closed stores — 18 of which are sub-let — represent a cash outflow of £12 million a year, £8.6 million of which Focus could save through the CVA.

HBOS and GMAC, its lenders, will not renew its £50 million credit facility unless the burden of the “dark stores” is removed. Mr Grimsey said: “The CVA is absolutely essential. The key to this is revolving credit facilities, which run out at the end of this year.”

Mr Grimsey is optimistic that landlords will back the proposal at a vote on August 24. “It’s a rock and a hard place for them, but it’s also a rock and a hard place for us and our 5,500 staff. The pre-pack vehicle is over-used — it’s not a simple exercise but we have it as a contingency plan,” he said.

As part of the proposed CVA, Focus will ask the remaining landlords to accept monthly payments for the next 18 months, after which it will revert to a quarterly arrangement.

Focus is owned by Cerberus, the US private equity group that bought it for £1 in 2007. Focus said that it was trading ahead of expectations.

Back to Keith now... good use of the CVA tool. Or is it, what will the landlords think?

See this article from Macfarlanes LLP on the merits of the Stylo CVA, JJB Sports CVA and why one was accepted and the other not.

The impact of the JJB experience on pre-packs

Macfarlanes LLP
Simon Beale and Simon Hillson
United Kingdom
May 31 2009

In landlords' eyes, the February 2009 Stylo CVA proposal, considered in more detail here, was priced and structured too aggressively. The low percentage turnover rent (with no base rent) was particularly unattractive and was a significant factor in the rejection of the proposal.
JJB seem to have learnt from the Stylo experience. They structured their CVA proposal in a manner that was more attractive to landlords than the likely outcome in a pre-pack administration.

This CVA proposal may now set a precedent for the restructuring of multi-site businesses who find themselves in financial difficulty. The burst of pre-pack activity seen in the first three months of 2009 may now recede as other distressed tenants consider this seemingly workable alternative, particularly where the majority of unsecured creditors are landlords and where the business is in difficulty due to over-rented and under performing stores.

There do, however, remain some insolvency situations where a pre-pack may still be a more attractive option for tenants. If the main reason the tenant is in trouble is because it has taken on too much debt (ie there are no over-rented, under performing sites as such) a pre-pack may be the only realistic option for the tenant. Landlord creditors would not be left out of pocket because the buyer of the business will still want all of the premises for trade, but some of the more junior lenders, who may have debt that would not survive a pre-pack, might be.

How do CVAs work?

A CVA is a formal compromise between a company and some or all of its creditors. Often this will involve creditors receiving a fraction of the total owed to them. It may also involve a change in the timing of payments to creditors. In general terms, creditors are (or should be) incentivised to vote in favour of the proposal by ensuring that any reduction in their indebtedness, or other disbenefits they receive, are still likely to leave them in a better position than would be the case on another form of insolvency, such as administration or liquidation.

In a CVA, a business has a wide flexibility as to the proposals it chooses to make. Different arrangements can be reached with different creditor groups. Proposals can be made to keep some or all units open, possibly at a reduced rent and sometimes with more flexibility on break options or ability to assign. Existing management are also able to continue operating the business in accordance with the terms of the CVA, in contrast to an administration where control moves to the insolvency practitioner.

To take effect, a CVA proposal requires 75 per cent or more of creditors by value to vote in favour of it (the proposal will also fail if more than 50 per cent by value of those creditors who are 'unconnected' with the company vote against it).

In the case of landlords, the 'value' might have two components. The first component is the sum actually owing at the time of the vote. The second component is the future rent that is yet to fall due under the lease. The chairman of the meeting of creditors has a discretion as to the proper value to place on this, and chairmen have frequently valued future rent at the token sum of £1 only. If a tenant is up to date with rent payments and all other sums due under the lease at the date of the vote, the landlord may potentially only have limited voting power at the creditors' meeting.

If a CVA is approved by 75 per cent of creditors, it binds all creditors, including those voting against the proposal. In the property context, landlords cannot then pursue other remedies against the current tenant such as forfeiting a lease for unpaid rent, provided the tenant complies with the terms of the CVA. A landlord who considers that they have been unfairly prejudiced by the terms of a CVA does, however, still have the ability to challenge it within 28 days. (In a rare case, such as the 2007 Powerhouse dispute, landlords who voted against may persuade the court to overturn the CVA if they can demonstrate that it unfairly prejudices the minority who opposed it.)

Creditors, including landlords, will receive advance notice of a CVA proposal and therefore have an opportunity to consider it properly. This is one of the starkest contrasts with a pre-pack administration, where usually the first that most landlords know about the pre-pack is after it has already occurred.

Contrasting JJB with the Stylo experience


The CVA proposals for Stylo, owner of the Barratts and Priceless shoe store chains, received a great deal of publicity. In February 2009, Stylo acknowledged it was in financial difficulties and proposed a novel CVA that would have involved various of its creditors, but especially its landlords, making significant sacrifices to help the chain avoid administration.

At a packed creditors' meeting on 12 February, the proposals were voted down. Many of the creditors voting against were landlords.

Why were so many landlords against the Stylo proposal?

The CVA would have involved rents on all Stylo's retail properties being reduced to 3 per cent of turnover for an initial period, rising later to 7 per cent. Putting this in context, a typical turnover rent for a chain retailer in normal economic circumstances is usually in the range of 10-12 per cent, with a base or minimum rent below which the turnover rent cannot ever fall.

We are aware of one landlord of premises whose current rent was in the region of £200,000 per annum, but for whom 3 per cent of turnover would mean the rent would fall dramatically to around £24,000 per annum.

On the other hand, the proposed CVA would have allowed landlords to market their premises and re-let to another occupier, in which case Stylo had the option either to pay an increased rent or to vacate.

Voting conduct of landlords may well have been determined by whether they perceived themselves to be a landlord of a 'good store' or a 'bad store' (landlords of 'good stores' being those who are likely to see their lease survive a pre-pack administration, and who therefore may be less willing to consider a CVA alternative involving a significant rent reduction).
Landlords of 'bad stores' in Stylo's case might have been more likely to vote in favour of the CVA proposal. They would expect to be left with nothing but an empty property if the CVA were rejected and Stylo went into administration.

On the other hand, landlords of better performing units might have considered it worthwhile making a stand against the proposals, not wanting an unappealing precedent (as they might see it) to be set for future CVAs. From their perspective, the Stylo CVA would:
• dump most of Stylo's existing liabilities; cancel existing rent arrears;
• reduce the rents to potentially very small sums;
• keep the business trading in the hands of the existing owners and managers (who landlords may feel were responsible for getting Stylo into its predicament in the first place); and
• not provide any guarantee that a specific number of jobs would actually be saved.

There were reported to be approximately 200 people at the Stylo creditors' meeting, many of them from some of the big name landlords. The Times of 14 February quoted a 'City source' who said 'the attitude of [one landlord] was incredibly fractious. They were really agitating against the deal. The tone of the meeting was set when one of the advisors [to Stylo] pointed out that this agreement would protect the employment rights of 5,450 people – and one of the landlords said "yes, but we don't care about that do we?"'

The Stylo CVA proposal was rejected, and the company promptly went into administration. One of the shareholders of the original company bought back a large chunk of the business from the administrators, saving about half the jobs in Barratts and Priceless shoes. Some 220 stores were shut, with 160 stores and 165 concessions remaining open for business.

JJB – a different type of CVA

The majority property industry perception is that the JJB CVA proposal offered a substantially better deal for landlords:-

For landlords of the 250 'good stores' that are still trading it provided for:
• full payment of the March 2009 quarter day's rent; and
• full payment of all rents going forward, but with rent being paid monthly rather than quarterly for the next twelve months. (In the current economic climate landlords appear to be relatively willing to accommodate tenant requests to switch from quarterly to monthly rent payments, so this may not have been seen as a particular concession for landlords of 'good stores'.)

For landlords of the 140 'bad stores' that had already shut, the proposal involved:
• no more rent being paid;
• a £10m ring-fenced fund being set aside to give landlords some compensation, typically about six months' rent;
• landlords being able to take premises back as soon as they wish; and
• JJB continuing to pay business rates on closed/empty stores until the lease ends.

Non-property creditors were generally to be paid in full. Indeed, the only classes of creditors who were compromised by the JJB CVA proposals were landlords of the 'bad stores', and certain contingent creditors such as former tenants who may still be liable for rents not paid by JJB.

Are the improved terms being offered because JJB are nicer than Stylo? Have JJB observed the lessons of the Stylo experience? Do JJB simply have more money left in the pot (as a result of their bank re-financing, which was conditional on the CVA being approved) to allow for a more generous offer to be made to landlords? On the other hand, would some of the bigger landlords say that the improved JJB terms simply show that the landlords made their point successfully in the Stylo case? You are invited to take your pick from some or all of these possibilities.

Recovery from former tenants and other third parties

Remember that in general terms, a landlord who is restricted from claiming against a tenant that is the subject of a CVA arrangement can usually still recover unpaid rent from other sources including (i) rent deposits, (ii) original tenants and previous assignees who have given direct covenants to the landlord (for leases granted on or before 31 December 1995), (iii) previous tenants who remain liable under authorised guarantee agreements (for leases granted after 31 December 1995), (iv) guarantors of an existing tenant and/or (v) sub-tenants.
Landlords also need to remember, though, that if they bring a lease to an end by forfeiture or surrender, this may prevent them from recovering any future rent from these sources.

From a landlord perspective, another attraction of a CVA over an administration is that with a CVA and a 'good store' there is no related lease assignment to the purchaser of the business: the current tenant remains the tenant, and any former tenants who were liable under authorised guarantee agreements (for leases granted after 31 December 1995) will continue to be liable.


Keith Steven - thanks for the great article Macfarlanes

Over 98% of KSA's CVA's are accepted, so who will you call 0800 9700539.

Contact Keith Steven 07974 086779.

Downside of Pre-pack for Cobra Beer Creditors

Cobra Beer pre-pack administrator's report published.

Creditors set to lose £71m reports The Mail on Sunday Business section.

It says that a report by administrators from PricewaterhouseCoopers into the Indian lager company founded by Lord Bilimoria found there were 340 unsecured creditors that are unlikely to get any of their money back.

Wells & Youngs, which brewed Cobra beer under licence, has losses of £1.9m.

The report found that Cobra, which never made a profit, was in desperate need of funds by February 2008 so the directors decided to sell up. By last January there had been just one offer, from Wells & Youngs, but this was rejected.

Then Cobra's creditors demanded that it pay its bills, leaving it vulnerable to a winding-up petition.

Brewer Molson Coors paid £12m for the company after it went into administration.

Lord Bilimoria, who once claimed Cobra could be worth £150m, is a director of the new company

So the classic complaint of pre-pack administration is that unsecured creditors get nothing is demonstrated in this case. I would be interested in the views of the administrator regarding the directors. This company, under the direction of Bilimoria, never made a profit as he vowed to go for growth not profits. Seems that this model was found out!

Sunday, 2 August 2009

HMRC Time to Pay Deals

An amazing 180,000 companies are now using the HMRC time to pay programme according to HMRC and the Sunday Times. Some £3.2billion is now being paid over periods of 6-24 months.

Since February 2009 some 120,000 companies or 24,000 a month have joined the scheme. Some 1,100 deals are being handed out every business day!

This staggering number of insolvent companies (not being able to pay PAYE and or VAT on time is a test for insolvency) not paying their taxes on time is a huge shield for those SME's, but is also a false sense of security about the state of business in the recession. Had half of these entered some of form of insolvency or closed for business the outcry would have been huge. Of course this is the main aim of the scheme, keep the bad business news and lost jobs out of the headlines, there's an election coming!

In normal times the tax collectors would be pursuing these companies with vigour and using County Court Judgments, winding up petitions and bailiff action. Now, the government is positively championing this time to pay programme as a positive thing! How times change.

I also note the articles in the Sunday Times, on 2nd August, stated that thousands of companies owing £320m (or 10% of the total) are now on second or subsequent time to pay deals. In other words they are insolvent, they then failed to pay the first deal and have been give a second or further chance. How far to take this? Three or four deals? More? When does HMRC start taking legal action against defaulters?

Aside of the politics of avoiding lots of insolvencies, is this de facto bank lending? Given that the Lloyds TSB/ HBOS/RBS nationalised banks are struggling to lend is the bank of HMRC taking up the slack? Slightly cynical perhaps, but I meet many people who are amazed and annoyed that 180,000 companies are getting a government sponsored loan that, in effect, gives them an advantage over their competitors who are paying their taxes on time.

What other solutions are there?

If companies are failing to meet these time to pay deals they should consider using a more radical restructuring tool like company voluntary arrangement. It leaves the directors in control of the business, avoids voluntary liquidation and administration and gives the ability to pay %age of the company's overall unsecured debts over up to 5 years.

If the company is not viable, then creditors voluntary liquidation or administration should be considered. Finally, when the HMRC programme comes to an end and normal rules apply, expect a lot of compulsory liquidations.
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