My best company rescue!

1 June 2011

Oil and Gas Sector Services company £3m sales

There have been hundreds of clients in my 15 year turnaround career, but one of the most satisfying was the engineering company I helped restructure, turnaround and raise investment for, from an industry Goliath for this little David.

The job entailed defeating a winding up petition with a company voluntary arrangement (CVA), raising working capital, and restructuring management.

This company was a well established business trading for 30 years in this sector. It had a poor year in 2003 followed by an even worse event in 2004; the business lost its biggest customer and incurred a bad debt of £286,000 into the bargain.

Everywhere the MD turned, he was told “bin the company” walk away and start again” etc. Mr D was appalled that 30 years of trading could end up with that result and did not want to let his creditors, the bank or his people down.

I believed that an honest approach to creditors would be well received as the MD was trying to obey the mantra of the law – “maximise the interests of creditors”. A CVA was proposed but before the creditors received their copy and could vote, a single creditor (who was also a competitor) took the opportunity to try and knock the company over with a winding up petition.

This was filed in the Sheriffs Court in Edinburgh and notified to KSA Group on the same day. We immediately took action and appointed a lawyer and junior counsel to represent the company and seek to have the petition struck out.

The sheriff agreed and said – “it is not equitable to allow a single creditor to make the decision on the company’s future, when the law and the case law (Re Dollar Land) allows for the body of creditors to decide under the company voluntary arrangement process”.

The petition was therefore rescinded and the CVA was approved by creditors just over 2 weeks later. This was probably a first in Scotland and was driven by expert advice from KSA Group.

After the CVA?

We assisted the MD to restructure the company to survive the rigour of the CVA; I joined the board as a non executive director to facilitate the medium term recovery and also to explain the CVA to the potential investors. Whilst Mr D was very focused and driven, other management was generally weak. We conducted a review of ALL senior management over 2 months and reshaped the board and the SMT (Senior Management Team). We replaced the non performers quite quickly. Whilst painful for the patriarchal MD it was necessary and he knew that.

Some seven months into the process the International Goliath wanted to acquire the company to act as a bridgehead into the North Sea market. The really good news was that they were dual based in Italy and Houston in the USA and I was part of the negotiation team that had to travel to Italy (great pasta and brilliant red wine!) that led to the Goliath buying 80% of David and providing new working capital in excess of £700,000.

A little over a year later the Goliath purchased the CVA debt and the company successfully exited the CVA process. RBS, the secured creditor was paid in full and unsecured creditors got 29p in £1.

So, the moral of the case study is that a CVA (if there is a reasonable prospect of it being approved) can defeat a winding up petition. But the CVA is not a panacea - much hard but often satisfying turnaround work may still be required post rescue.

2011 update, 6 years later the company has nearly quadrupled in size and the company is now operating from two sites as its growth is so rapid. What price the insolvency people who told Mr D to “bin it”?