CVA case study - UK based restaurant business
The director of the company contacted KSA to discuss the company’s present financial situation. Then, after a subsequent telephone conversation with KSA regional manager Hugh Gabriel a meeting was requested and held at the company’s premises.
KSA was appointed to assist the company with a Company Voluntary Arrangement (CVA) in late 2014. Turnover for the 2015 financial year was c£350K.
The company was encountering financial difficulties due to:
- Under capitalisation
- HR Issues
- Inadequate cost and stock control.
- The premises are on a long term lease
- The company employs 20 staff including the director
Bank & Financial facilities
- The Bank was secured via registered legal charges and provided a loan and overdraft facility
- There were also two unsecured loan facilities in place
- The company had no finance agreements.
- The director(s) had provided Personal Guarantees (P.G’s) to the bank and several other creditors.
- The was also a director’s loan account i.e. monies the director had made available to the company by way of loans which made the director a connected creditor. It is usually an HMRC Modification (condition of acceptance) to the CVA that the connected creditor agrees to waive their claim to these monies and that claim does not survive the CVA.
Unsecured Creditor debt:
- £150K of which HMRC was c60%
- Cost & overhead reduction
Controls were put in place to ensure tight stock purchasing and control; including portion control, and close management of wastage. This included new kitchen staff.
HMRC’s collections officers attended the premises more than once, however due to successful negotiation no goods or stock were removed.
The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court. The CVA proposed 32p in £1 repayment to unsecured creditors over 5 years.
HMRC provided their response rejecting the CVA. The item of concern cited in their response was that of historic compliance.
The creditors’ meeting was adjourned for two weeks to permit an appeal to HMRC to reconsider the decision however this was unsuccessful and the rejection was upheld.
The CVA was therefore rejected at the adjourned creditors Meeting. The director is currently considering the company’s position.