Duff & Phelps is pleased to announce that it has assisted a recruitment firm and its subsidiaries (“the Group”) in agreeing a Company Voluntary Arrangement (“CVA”) with the Group’s creditors, despite significant HMRC arrears.
About the Group
The Group specialises in providing a funding and payroll solution to the temporary recruitment sector. The Group factors the agents’ debts, acting as principal agent to the end customer, and achieving an annual turnover of c. £9m.
In December 2013, the Group unexpectedly suffered a bad debt from one of its key customers. With a time-to-pay arrangement already in place and the Group’s lender unable to extend any further funding, the Group had insufficient working capital to meet its ongoing HMRC liabilities.
Duff & Phelps concluded that a further time-to-pay arrangement was unsustainable given the level of HMRC debt. In addition, HMRC had already commenced winding up proceedings. The Group, after consulting Duff & Phelps, decided a CVA was the most appropriate route to pursue.
Despite the Group defaulting on historic time-to-pay arrangements, HMRC, who represented over 90% of creditor claims, agreed to the CVA proposal in April 2014. The CVA is expected to return an estimated 36p in the pound to the Group’s creditors.
The proposal offered a significantly improved return to HMRC compared to winding up the Group. It also secured ongoing employment for the Group’s staff and allowed for continuity of trade, thus preserving the value of the assets and the funder’s primary security.
Whilst HMRC would not consider a further time-to-pay arrangement, this was effectively achieved through a CVA process.