Bury Football Club have been expelled from the English Football League following the team’s collapse into administration. The Insolvency’s Practitioners Association confirmed they will be investigating the company voluntary arrangement (CVA) designed to cut the debts of the club.
Why did Bury Football Club Collapse?
The Bury North MP, James Frith, and the Football Supporters’ Association disclosed concerns surrounding £7 million claim admitted into the CVA as debt owed by Bury to a company, Mederco, owned by the club’s former owner Stuart Day, the club’s former owner.
The club was sold for £1 to Steve Dale, shortly before announcing Insolvency at Mederco as well as several of his other property companies. In July Dale acquired a CVA which offered creditors 25p for every pound owed leaving the club with a debt of £1.75 million owed to RCR Holdings. RCR Holdings Ltd. bought the debt despite being a company formed only two days prior to the meeting held to discuss the possibility of a CVA being passed.
Why is an Insolvency Investigation Being Held?
The firm Leonard Curtis, the Mederco administrator, stated that the amount owed by Bury to Mederco could not be established as there was a lack of evidence as to the accuracy and proof of the quantum of any debt.
“CVAs are a debt repayment solution that allows companies in debt to pay creditors over a fixed period,” the IPA said. “CVAs are stringently regulated and should command the highest level of diligence from insolvency practitioners [IPs].”
The IPA takes concerns arising from insolvency procedures extremely seriously and can confirm that, due to information that has been brought to its attention, and in line with processes to regulate IPs, it is considering the operation of the CVA relating to Bury football club.
What is a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is an agreement between a company and its’ creditors to allow a proportion of the debt owed to be repaid over a fixed period of time. The proposal must be agreed to by 75% of the creditors by value for it to pass.
A CVA creates a moratorium on debt enforcement action (such as a winding-up petition being presented) by creditors against an insolvent company (such as Bury FC in this case). A CVA allows the business to carry on trading and keeps the directors in control of the company.
What are the advantages of a CVA for your business?
- All monies that are owed to creditors can be subsumed into one monthly payment;
- A CVA stops the threat and presentation of a winding-up petition;
- Improves cash flow as soon as the CVA is agreed to by 75% of the creditors by value;
- Terminate onerous supplier contracts;
- Directors and shareholders retain control of the company;
- Lower costs than a scheme of arrangement;
- Privacy as a CVA is not advertised or announced (unlike a winding up petition or administration).
On what grounds can a company oppose a winding up petition?
- the debt alleged in the demand to be owing is genuinely disputed on substantial grounds by the company;
- the company has a genuine right of set-off against the creditor which exceeds the amount claimed in the demand; or
- in certain other limited circumstances (for example such as Jurisdiction, Company likely to become insolvent, Technical or procedural error or Delay).
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