Having to consider putting your company into Creditors’ Voluntary Liquidation (or CVL) is not something any Director sets out to have to do…
Key Business Information
- Over 650 employees
- Trading for approximately 2 years following an MBO of a previous business
- Significant retrospective liability to HMRC as a result of a change to HMRC policy
- Withdrawal of HMRC consent to allow certain payroll deductions
How We Helped
This company offered tax efficient payroll solutions to temporary workers through recruitment agency referrals, outsourced bureau payroll services to large organisations and accountancy and bookkeeping services to small and medium sized business and limited company contractors.
The directors had performed a management buyout of their previous employer in November 2015. The company had a historically profitable business model and continued to operate at a profit. However, Government changes to travel and subsistence tax relief in April 2016 had an immediate impact on profitability resulting in margins becoming tighter.
The directors initially approached us for advice in July 2016 to assess the impact of the changes imposed by HMRC on the company’s business model. At this time, the company was clearly still solvent, albeit operating on tighter margins than it had previously. At this stage, the directors introduced a number of cost cutting measures to improve future profitability and continued to monitor the company’s performance.
At the end of 2017, the company received notification from HMRC that its dispensation to grant tax relief in respect of travel and subsistence was being retrospectively withdrawn. The company disputed the withdrawal and entered into correspondence with HMRC to try to resolve this.
The potential worst case liability was calculated by the directors as being over £3 million based on historic payments.
You can find out more about the pre pack administration process here...
Follow receipt of the withdrawal notice, we attended another meeting with directors at which it was concluded that unless the company could successfully appeal the notice, it would become insolvent as it lacked the reserves or future profitability with which to discharge the retrospective liability. The directors sought legal advice on the prospects of appealing the notice and on the costs of doing so and concluded that the company could not realistically pursue the appeal and that it should therefore be placed into administration.
We instructed a specialist valuation agent to asses the company’s assets. The agent established that the company had a material goodwill value with some further residual value held in its tangible assets. However, the agent advised that the value of the goodwill would erode very quickly in the event that the company ceased to trade and that an urgent sale was therefore desirable.
With the assistance of the directors, we immediately entered into discussions with a competitor business which had been interested in acquiring the company for some time. The competitor very quickly put forward an offer to purchase the business but wanted to do so by splitting the company into 4 separate parts, all of which were to be purchased through pre pack administration in order to provide a seamless transaction and provide surety for the purchaser.
The pre pack sale of the business resulted in 654 of the 656 employee contracts being transferred to the purchaser. The purchase was then able to continue trading the underlying business without any unwelcome interruption. We were also successful in realising circa £500,000 for the benefit of the administration estate from the company’s assets as a whole resulting in a positive return to the creditors.
