Recovering Money from Companies entering into a CVA
There is very little advice out there without paying for a rather expensive solicitor on exactly what to do if a company owing you money enters into a CVA (Company Voluntary Administration).
The reality is that the vast majority of companies who enter into a CVA have done it for one reason and one reason only, which is to recover as much money as they can out of the business for themselves and their immediate family, and leave everybody else in the lurch. The accountancy firms who go along with this make considerable amounts of money acting as the administrators and do not do any work at all or very little work in order to make this money, so happy to acquiesce with the company who have entered into the CVA.
Let me give you a quick example on how the CVA can be used to get money out of a business that is in danger of failing.
First of all, the company needs to create some debtors who are owed money. Very often list of current creditors to a failing business will include friends and family members who miraculously suddenly find themselves owed tens of thousands of pounds. By having these debtors as well as your debt and anybody else who is owed money by the company, the company has managed to dilute how much money each of the creditors will get including their own friends and family, and in some cases either themselves as shareholders or directors, or employees of the business. So if your debt was £10,000 and on the list of known creditors there are entries for the directors’ parents for £30,000 and the directors’ brother for £10,000, then your chance of getting any money out of that business has just dropped to about 20% of what the debt actually was in the first place. The administrators will look at all the figures, charge huge amounts of money by an hourly rate and make an award of the cash available to all the creditors in proportion. So if the company only owe you £10,000 but have now managed to find themselves another £40,000 in creditors, then the £10,000 will be split amongst the creditors in a similar ratio to their debt, and you will suddenly find yourself receiving perhaps ten pence in the pound rather than one pound in the pound, because of the new creditors that have been created.
As a good majority of CVAs are entered into on this basis, and teams of accountants up and down the country make considerable amounts of money out of the company’s debt, it is usually a good rule of thumb to walk away from any business that enters into a CVA and just be grateful for anything that you can get out of them.
The same applies for IVAs. It is often asked how do you get money out of someone who is trying to enter into an IVA or has gone bankrupt, and the answer is that it is virtually impossible.
The IVA is there to stop you taking money off the debtor by virtue of their insolvency, but it very often does not stop a firm of accountants taking huge amounts of money off the debtor in order to manage their lack of funds and avoid paying you anything instead of themselves. So this is another rule of thumb – if someone enters into an IVA or applies for bankruptcy the best bet is to walk away and cease to worry about that particular debt. The only time it ever becomes worth pursuing is if you know of an asset that has not been identified to anyone else and you can get a charging order put on it. This very often is the only way of securing a debt against a debtor and to make sure that you get paid.
So much of insolvency is about trying to avoid paying you money and in the process companies paying accountants for the privilege, that it is very often worth simply walking away from the moment you receive a letter from an insolvency practitioner telling you that a company has entered into administration. So much time, effort and money can be spent pursuing debt that is never going to be recovered, that it is often just to accept this and keep away.