Chain Of Beauty Salons Losing Trade Following Pandemic

The Challenge

A chain of beauty salons in Scotland, which had experienced strong growth with a predicted turnover of £2.5m in 2020, faced a severe crisis due to the COVID-19 pandemic. The company’s expansion plans had committed it to large liabilities, which became a significant burden when business was forcibly shut down during the lockdown. Due to the nature of their services, the salons were not allowed to reopen as quickly as other retail businesses. Post-pandemic trade did not rebound as hoped, leading to a substantial liability with HMRC of £426,000. The directors, believing the business was still viable, sought help after HMRC had already served a winding up petition. Prior to KSA’s involvement, they had received advice not to pay HMRC, which contributed to the tax authority’s aggressive action.

The Solution

The company engaged KSA Group, who immediately took swift action. Their first priority was to persuade HMRC not to advertise the winding up petition and to ultimately withdraw it. Had the petition been advertised, it would have likely meant the end of the business. Once the immediate threat was neutralized, KSA advised the company to propose a Company Voluntary Arrangement (CVA) to its creditors, including HMRC. The CVA was designed to provide a structured and manageable way for the company to repay its debts while continuing to trade. The company also implemented strong financial controls and cost-cutting measures to ensure its long-term viability. The CVA proposal was submitted to creditors, detailing the repayment plan.

The Results

The CVA proposal was successfully approved by creditors in November 2022. The outcome provided a clear and structured path to recovery. As a preferential creditor, HMRC is set to receive a full 100p in the £1 of its debt over the five-year term of the CVA. The remaining unsecured creditors will receive 33p in the £1. This solution was based on the belief that since the business was successful before the pandemic, it had the potential to be successful again. The CVA provided the company with the breathing room it needed to implement cost controls and focus on rebuilding its customer base. By avoiding liquidation, the CVA saved the business, its assets, and provided a better return to all creditors than a winding up would have, which would have likely resulted in zero recovery. This case highlights the importance of acting quickly and securing expert advice to navigate a crisis.