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Company Voluntary Arrangement.

Can a CCJ awarded after a CVA has commenced be added / included in the CVA?

Hello

I cant find the answer to this specific scenario anywhere:

A debtor has entered into a CVA.

A disputed debt, that was not submitted to the practitioner, may now go to court.

The debt in question was accrued BEFORE the CVA was aquired, but the resulting CCJ would be granted after, i.e while the CVA is in effect.

Can debtor have the value of the judgement subsequently added to the CVA against the creditor's wishes?

The creditor would rather persue traditional enforcement (via HCEO) if possible.

Thanks for looking.

Pip.

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11th Oct 2018 18:04

Speak to the IP

Most will be comfortable including in the CVA.

If you’re trying not to include in the CVA you will her to show good reason why it should not - especially given the debt was incurred before the CVA was proposed.

Thanks (1)
to James Green
11th Oct 2018 18:18

Thanks for replying.

My concern is that the debtor will resist its inclusion as the debt was previously disputed by the debtor ( on dubious grounds ).

That would require the effort of winning a ccj just to join the CVA, which I have no confidence they will survive ( its a 100 pence in the pound - over five years - led by HMRC )

Alternatively, if they got a CCJ outside the CVA that would enable collection of the debt over a shorter time scale ( less than the five years)

If they roll over and allow it onto the CVA without a fight thats probably the best / easiest outcome.

But if they insist on a fight / CCJ then HCEO enforcement would be the better - and deserved - option.

I suppose what I'm asking, is can the debtor make the creditor go to the trouble of a CCJ then insist its added to the CVA?

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12th Oct 2018 09:55

If the creditor is owed more than 25% of the total debts
(including the disputed debt) or does so with other creditors who dispute the decision to approve the CVA that could negate it.
Why didn't the client tell the IP of the debt even if it was disputed, that's a serious omission

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to bernard michael
12th Oct 2018 10:50

Hello Bernard

Less than 15%, the majority is a HMRC debt.

The client had no idea that the debtor was applying for a CVA until it was registered at companies house.

No contact from the IP.

The CVA isn't a bad thing. We wouldn't have objected had we have known about it.

The client had lost interest in the debt believing the debtor would not survive the year - which he wouldn't have - without the CVA.

The issue is: can the debtor force us onto the CVA against our wishes, even if he makes us jump though hoops - and expense - of obtaining a CCJ ?

That would seem grossly unfair. What incentive is there for a debtor to be honest about their liabilities?
A dishonest person might as well omit small debts and see if they come knocking - all at the creditors expense!

(We would accept going on without a fight as the easiest option.)

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to bernard michael
12th Oct 2018 10:53

To be clear:

We are looking for leverage.

Allow this debt onto the CVA without contest, or face court and enforcement outside the protection of the CVA.

Perhaps I should edit the original post to make this clear.

Thanks all.

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12th Oct 2018 11:03

In that case had the existence of the debt been known the CVA would still have gone ahead as it had the relevant creditor majority. The IP will take a pragmatic approach and if challenged your client would have to prove a loss would have occurred if the debt had been properly declared. At 15% of the overall debt they can't
If the IP challenges the inclusion of the debt you should get the CCJ and then it will be included in the CVA

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to bernard michael
12th Oct 2018 11:22

Thanks Bernard.

That's bad news.

So a debtor can make a creditor spend another £500 or so going to court, just to receive £70 a month until he defaults on the CVA?

If the debtor lasts another year, the creditor will recover £350 of the original debt once court costs are taken into account.

Not much incentive for a debtor to be honest about minority debts then?

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to bernard michael
12th Oct 2018 12:09

...and I may have spotted some potential 'leverage'.

The CVA contains a provision for 'increased claims' inserted at HMRC's request.

It states that an increase (in the debts owed) of more than 10% will be considered a breach.

A CCJ for the full amount would be well in excess of 10%

Could they be persuaded to accept a value of 9.9% without contest for the good of all? I wonder.

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12th Oct 2018 14:14

I assume the figure was tongue in cheek. If not what a waste of time even thinking about going to Court. The judge would not be happy if you did and might even award a costs order against you

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to bernard michael
12th Oct 2018 14:44

Bernard

The debt would be approx £8k but the terms of the CVA provide for £500 a month split between creditors (totalling £60k) hence my estimate that the creditor would collect approx £60 - £70 a month = approx £800 in year one - minus £500 court fees = approx poultry yield of £300 in year one!

This seems very unfair on an £8k debt that the debtor sought to hide from the IP.

My feelings are that if they insist on a CCJ, then it should be enforceable via conventional means (HCEO).

Its looking like hiding debts from your insolvency practitioner is a worthwhile activity for the dishonest!

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12th Oct 2018 15:13

Would you like to revisit the numbers. You state that the debt is £8k and that creditors will get 100% over 5 years. That = £133 per month
Yet you say that your man will receive £60-70 per month.
Your first port of call must be talk to the IP

Thanks (1)
to bernard michael
12th Oct 2018 16:09

Yes you're correct.

Having spoke to specialist debt collection solicitors, it transpires there is no option to proceed legally against a company in a CVA where the debt pre dates the CVA.

The 'case' for inclusion into the CVA must be sent to the IP.

Where the debt is disputed, the IP will seek legal advice regarding the validity of the claim then proceed to include / exclude on that basis.

This is the opinion of the solicitors and the IP, so that settles the issue.

Regards to the monthly payment:

The terms of the CVA provide for £500 / month, split between all creditors, for the first year.

This will be reviewed / hopefully increased at the end of year review.

Hence the paltry return in year one!

My client's* 'slice of the cake' will be £8k of £68 so that actually works out at the princely sum of £58.82 a month
in year one.

The upside of this being that a favourable review from the IP's solicitor will be a lot less hassle and cost than a court case / cci, so we'll see how it goes.

There is the option of court proceedings if the claim is rejected by the IP.

*client - as in family member who might pay with cheap bottle of wine!

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17th Oct 2018 13:09

The debtor should have advised the practitioner, so that he/she might have made a professional judgment whether or not to include it in the CVA.
The clue is "Voluntary Arrangement"
After the event a CVA company may continue to trade and take on liabilities. So, any post agreement liabilities are not Germaine to the CVA.
It is for this post-CVA creditor to choose whether to be included or not.
The CVA company may have given itself a further problem.
An included creditor may apply to have the CVA set aside on the grounds of being misled, in that full information regarding the debtor's circumstances was withheld, so that consenting creditors might not have agreed to the CVA if details of this debt had been known.
In any event the creditor may apply for a winding-up order if the value is above the set minimum. In those circumstances the court has no ability to refuse the Winding Up order. If I was the creditor I would go straight for a winding up order. This would blow the CVA out of the water. In these circumstances all the creditors would stand equal in the ensuing liquidation. So, the CCJ holder may end end up getting SFA anyway.
What the CCJ creditor does in the circumstances depends on an evaluation of the numbers.

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17th Oct 2018 13:30

in clarification of my previous comments:
Based on real experience, if a debtor genuinely thought that the claim had no merit then yes, it might be reasonable not to include it on the creditor list. Nevertheless the IP should have been advised, and the IP should have asked whether there were any disputed claims.
In this instance my understanding of the brief notes supplied is: The defaulting debtor knew he owed the money but just hoped the creditor would go away before chasing it. This is sh*t behaviour.
Save for and except for rationally trying to salvage some funds, I would otherwise recommend that the creditor puts the boot in.
In this case clearly the director of the defaulting company is at risk of personal liability for this debt. Sadly the eye watering cost of legal action prevents action.

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avatar
17th Oct 2018 13:30

in clarification of my previous comments:
Based on real experience, if a debtor genuinely thought that the claim had no merit then yes, it might be reasonable not to include it on the creditor list. Nevertheless the IP should have been advised, and the IP should have asked whether there were any disputed claims.
In this instance my understanding of the brief notes supplied is: The defaulting debtor knew he owed the money but just hoped the creditor would go away before chasing it. This is sh*t behaviour.
Save for and except for rationally trying to salvage some funds, I would otherwise recommend that the creditor puts the boot in.
In this case clearly the director of the defaulting company is at risk of personal liability for this debt. Sadly the eye watering cost of legal action prevents action.

Thanks (1)
to David Gordon FCCA
22nd Oct 2018 16:27

Thanks for your input David.

There is a clause in the CVA - at HMRC's behest - that subsequent additions to the CVA that exceed 10% of the total will trigger a review of the CVA.

Obviously this additional debt would pass that threshold.

If I was the debtor I think I would offer a negotiated lump sum - paid by credit card if necessary - to make this go away.

Regarding the debtors behaviour. Yes sh*t indeed. He literally laughed in the creditor's face, and has offered the IP the excuse that he thought the debt had 'just gone away'.

I think he might yet regret his behaviour as it costs the creditor nothing to submit this claim to the IP & his legal advisor.

Which is exactly what is happening now.

I'll report back when there is a decision either way.

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