Marky Mark wrote:
NorthLondonStag wrote:That's not quite correct. There are two tests:
(1) 75% + of those that vote (referred to above). So if he has 52% of the votes and nobody else votes then it goes through. He only needs the other 23% if the other 25% all choose to vote against.
For example if there are a total of £10m of claims, but only £5m bother to vote then the proposal is approved if more than £3.75m of that £5m vote in favour (ie 75% + of those voting).
(2) There is then a separate test which deals with 'connected' creditors forcing through the vote. This test says that the CVA fails if 50%+ of all of the 'unconnected' creditors vote against (and whether they vote or not).
So if (say) there were £10m of debts and £7m are 'connected' then if more than half of the £3m 'unconnected' votes vote against then the CVA fails, even IF the 75% majority is also achieved.
The purpose of the second rule is to try and stop connected creditors forcing through CVA against the wishes of a 50% majority of unconnected creditors.
HMRC do not have an official policy of voting against CVAs. However they have a long history with football clubs, because (i) they have never liked the rule that football creditors get preference (they tried to challenge this in Court, but lost); and (ii) clubs have often delayed in paying their PAYE and NI, for cashflow reasons. A lot of football insolvencies are triggered by HMRC applying to court for a winding-up order for unpaid taxes.
Great knowledge...far better than my assumption based way of operating. Thanks
So unconnected creditors are worth £3.4m, and with HMRC being owed £1m, then it follows (hopefully) that if another £700k of the £2.4m remaining creditors vote against/don't vote then it will get rejected?
In principle you are correct, but it may not pan out like that for the following reasons:
(1) the football creditors are likely to get a vote, even though they are getting paid in full [this is an oddity in the legislation - all creditors of the company get to vote, even if they are not being compromised]. As they are being paid in full then why would they vote against?
(2) HMRC may not vote against. They could vote for or abstain (ie not vote at all).
(3) Of the remainder, if they are being offered 25p/£ then they would normally only choose to vote against if the insolvency outcome is better (or they want to see the club out of business for some other reason). And remember some will be ongoing suppliers who want the club to continue so that they can get future business.
The full insolvency comparison is normally contained in the CVA proposal and will usually demonstrate that the insolvency outcome is (much) worse for creditors than the projected CVA outcome.
In football that's often because (a) football clubs in financial difficulties have usually sold (and leased back) or mortgaged their grounds (and have next to no other physical assets - they are unlikely to have any cash and the football league registration is mentioned below) and (b) the main point - you can't sell the football league registration to a new company, so you can't do an insolvency of the company and sell the registration to a new company. The registration must remain in the existing company.
A football club without an EFL registration can't play in the EFL, and therefore in practice the only way you can therefore keep going in the EFL is through doing a CVA. And to do that you have to pay your football creditors in full, as that's also an EFL rule. [If there is a full insolvency process and the assets are sold to a new company (say, owned by the fans) then the 'new' club can't then compete in the EFL. They have to start over again at a much lower level (league's discretion, but at least 3 leagues below, as I understand it)].
So the offer is normally to pay the football creditors in full (from a third party, to avoid legal issues which are too tedious to explain) and offer a decent amount to the unsecured creditors, which is significantly better than in an insolvency.
So if you are looking at this as an external creditor then you might be thinking that you can get 25p/£ out fo the CVA or much less in a formal insolvency. You might dislike the football club for what they have done but you may also prefer £25k for your £100k claim than next to nothing.
Finally, the 25p/£ probably also comes from the EFL Rules. As far as I'm aware these prescribe that on any CVA the unsecured creditors must be paid a minimum of 25p/£ in one go or 35p/£ over a three year period. I think this was done to prevent clubs offering derisory sums to creditors, which were minimal but better than the insolvency outcome.