Case Study Business Asset Sale for client in a CVA 2012:
Cheswick arranged the business asset sale for a company that had entered company voluntary arrangement (CVA) in 2010. This electrical contractor could not maintain or build sales as it was failing more and more of the tendering processes it went through.
CVA is a hugely powerful restructuring tool. However, most credit rating agencies, incorrectly in our view, regard this as an ongoing insolvency mechanism and remove all credit ratings because of the CVA.
Most of our clients’ large contracts came from large companies and they all require a full tendering process. Because the company was in a CVA and had no credit rating, it found it was losing more and more work.
Problem?
How could the directors act properly, maximise creditors interests and keep the business from collapse? With previous sales of £4m, but now sharply less, the company was set to run out of working capital.
Our solution?
A business asset sale strategy was proposed, in this method the assets are valued externally by a qualified surveyor or business valuation agent. Then the assets are sold through a formal legal process. The “business” is sold to a third party whilst the old “company” remains.
The independent valuation element is crucial to avoid section 238 Insolvency Act 1986, transactions at an undervalue risks. Your view of the asset value and the author’s may differ but a RICS qualified surveyors report settles the argument and protects directors from liquidators taking action to recover value lost in the sale.
Having had the valuation done, the business, work in progress, goodwill and vans were valued at a little under £20,000. Cheswick instructed the valuers, wrote and negotiated the contract for sale, board resolutions / minutes and made sure that the directors were guided through this difficult process.
“Newco” was a company that had been previously formed and was also owned by the directors and whilst they had to be careful about conflict of interest the overall result is this: oldco supervisors will pay 8p in £1 after the 2nd year of the CVA, to CVA creditors, having paid 3p in £1 in year 1. The liquidation will see a modest dividend to post CVA creditors, (once debtors collected) which are very modest because of lack of credit. There was no bank borrowing given the banks reticence to fund companies in CVA. Thus creditors interests are maximised by the process, as a better result is obtained overall than in winding up.
No jobs were lost as all transferred to the new company. This maximised the creditors (employees) interests too.
Total time to affect the deal from initial discussion one month. Total cost including valuation fees? Please call to ask!
So, if your company is in a CVA and is struggling for credit and cannot tender for new work, call Cheswick now and get advice, there is no fee for initial advice of initial meetings. This will be followed up by a solutions report setting out the options and the (fixed) costs involved.
Please call now 020 7416 6677
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