A Small Brewing Company Seeing Rapid Growth Leading To Cash Shortfall

The Challenge

A fast-growing micro-brewery faced a severe financial crisis in early 2023. The company’s rapid expansion had not been supported by sufficient working capital, making it vulnerable to external shocks. A major setback occurred with the cancellation and postponement of two substantial orders from a national supermarket chain. This resulted in a total loss of an order worth £100,000, with the stock becoming effectively scrap. The situation was compounded by a fire at the original brewery site in 2016, a complete shutdown during COVID-19, and increased competition from similar micro-breweries in the same area. The company’s invoice finance provider took fright and capped the draw-down from the factoring facility, which further squeezed cash flow. The company had a total of £12,271 in primary preferential creditor claims, £95,642 in secondary preferential creditor claims, and £171,572 owed to floating charge creditors. The total unsecured creditor debt, including employee claims, trade creditors, contingent creditors, and connected creditors, amounted to over £265,000. The managing director, having produced a cash flow forecast showing a significant “cash flow hole,” knew he had to seek expert help.

The Solution

The managing director contacted RMT KSA, and after an initial meeting and due diligence checks, the firm was appointed to assist with a Company Voluntary Arrangement (CVA). RMT KSA’s approach was to develop a comprehensive rescue plan that would provide the company with the financial breathing room it desperately needed. Over a three-month CVA preparatory period, KSA helped the managing director produce a detailed forecasting model and conduct “what if” scenario planning to identify the best trading model for the CVA. RMT KSA’s creditor liaison team worked tirelessly, keeping all creditors, including the landlord, informed of the company’s progress. They also successfully sourced a new invoice finance facility to replace the old one, which was a crucial step in stabilizing cash flow. The CVA proposal offered a fair repayment plan to creditors, reflecting the company’s new, more realistic trading model.

The Results

The CVA was a complete success. Just three weeks before the creditors’ meeting, a new invoice finance facility was secured, which enabled the company to repay RBS in full. The secured NatWest CBILS loan will also be repaid in full over time. The rest of the creditors approved the CVA, with HMRC, as the secondary preferential creditor, set to be paid 100p in the £1. Unsecured creditors will receive 61p in the £1, a much better outcome than a liquidation would have provided. The new landlord, who acquired the premises during the CVA preparatory period, was bound by the CVA, preventing them from taking adverse action. The company is now trading well, having learned from its past mistakes and is focusing on working with SME customers instead of large supermarket chains. This case demonstrates that with a proactive approach, a detailed plan, and expert advice, a viable business can overcome a devastating cash flow crisis, restructure its operations, and secure a successful future.