A Small Brewing Company CVA in 2023

The company was encountering financial difficulties due to rapid growth within a short period of time, at a rate which proved to be detrimental to the business. Furthermore, the cancellation and postponement of two substantial orders from a large national supermarket chain resulted in the business experiencing cashflow issues in late 2022. Having ordered massive amounts of new stock of tins and labelling (£100,000 worth) the order was cancelled and the stock was in effect scrap. The managing director realised it now had serious cashflow problems in February 2023 and having produce a cashflow forecast showing a “cashflow hole” he felt he had to approach KSA.

After the company produced identification of the directors and major shareholders and we could run our “know your client” and anti-money laundering tests, a KSA director took the initial enquiry meeting with the managing director of the client company. Our normal approach is to have an initial telephone of Teams meeting to learn about the business and the problems it has.

We then gather more detailed financial information, accounts and any projections. If the case looks to us like a company voluntary arrangement (CVA) is a viable proposition, we then prepare our unique strategy report for the directors. This sets out the turnaround plan, the timetable and the cost in an embryonic form.

Further problems faced by the company were as follows.

• A fire at the original brewery site in October 2016 caused by an electrical fault led to a complete write-off of the brewery’s contents. This led to the need for new equipment in 2017.
• Covid saw a complete shutdown of operations in 2022-21.
• Several similar micro breweries opened in the same area, impacting the business negatively.
• The business experienced fast growth post Covid and this was not supported by sufficient working capital.
• The company’s invoice finance provider took fright at the lost orders and capped the draw down from the factoring facility. This squeezed cashflow further.

Amount Owed to Creditors:

• Primary preferential creditors: employees would have been owed £12,271 for arrears of wages/holiday pay in any national liquidation.
• Secondary preferential creditors: HMRC was owed £95,642 for PAYE and VAT.
• Floating charge creditors: amount due to NatWest Bank plc under a loan and deficit owed to RBS Invoice Finance Ltd would have been £171,572 in voluntary liquidation.

Unsecured Creditors:

• In a terminal insolvency employee claims, redundancy, pay in lieu, would have amounted to £58k.
• Trade and expense creditors were owed £157k. This included Beer Duty owed to HMRC.
• Contingent creditors were £50k, this was mainly the landlords future rent and equipment finance liabilities.
• Connected creditors amounted to £30k, this was a directors loan to the company.

As part of the rescue plan KSA helped the managing director set out a plan for change, costs were reduced, and we liaised with all creditors over three 3 month CVA preparatory period. After a detailed forecasting model was produced over several weeks of work, a senior KSA manager assisted the director with “what if scenario” planning to work out the best trading model for the CVA.

Our creditor liaison team worked with creditors throughout keeping them apprised of the course of action the company was taking.  The landlord issue proved to be a very difficult negotiation and we had to persuade the landlord not to take back the premises through Court action.  During the CVA preparatory period, the existing landlord sold the premises, and the new landlord was bound by the CVA.

During the notice period, KSA Group managed to source a new invoice finance facility to replace RBS and this ensured that RBS was repaid in full three weeks before the decision making process (also known as a CVA creditors meeting). The secured NatWest CBILS loan will be paid over time and again in full.

The rest of the creditors approved the CVA with HMRC as the secondary preferential creditor being paid 100p in the £1 and the unsecured creditors to be paid 61p. HMRC voted in favour with standard modifications. Our client is now trading well and focusing on working with SME customers, whilst avoiding the temptation brought by large supermarket buyers!

KSA Notes:

If you run (or advise) a brewery or drinks producer facing cashflow difficulties start talking to KSA soon. We are seeing HMRC building collection pressure where Beer Duty, VAT and PAYE are in arrears and sending in HMRC field officers and even issuing winding up petitions.

With a carefully constructed turnaround plan, our expert turnaround and insolvency advisors can help the company build a CVA proposal that has a very strong chance of being approved by creditors. We can liaise with all creditors, HMRC and landlords to build a consensual workout that maximises recovery for creditors, whilst leaving the company under the board’s control.