Following an initial conversation with KSA, our Regional Manager for Scotland and Northern Ireland, Derek Robinson met with the company director at their plant in Northern Ireland to discuss, in detail, the problems the company was facing.
The company had a turnover of £760k, which was a significant drop of £394k on the previous year, although the director was confident of a recovery to the higher level, providing the company could survive.
The company encountered financial difficulties because the company's market, the livestock farming industry, had been adversely affected by a number of factors; A drop in prices as a result of cheaper competitive product being available from the Republic of Ireland, and inordinately high livestock feed prices caused by adverse weather conditions. This depressed commodity price coupled with unusually high direct costs led to customers delaying orders for equipment to make their operation more efficient and effective.
The director predicted this latent demand would begin to be released as farmers realise the importance of investing in more efficient systems to improve their operations, and as feed costs returned to lower levels.
During the intervening year, the company built up arrears to HMRC for unpaid VAT and PAYE & NIC as well as a general slowing down of payments to trade creditors.
HMRC, having applied pressure for payment, agreed to a time to pay arrangement with the director, for unpaid PAYE & NIC and VAT. The board also reduced manpower within the company to reduce direct costs and embarked upon a sales drive in the Republic of Ireland in a bid to improve sales to improve performance and try and deal with the resultant cash flow pressures. However, a little way into the time to pay arrangement with HMRC, the director realised this arrangement was unaffordable and contacted KSA to assist in the development of a CVA proposal.
The bank was not secured, as it did not provide any facility as the company operated a positive balance.
Total debt £258k including HMRC at £186k (c.72%).
HMRC approved the CVA. The creditors meeting was held in Belfast in July 2013 and the CVA was approved by the body of creditors with a dividend of 50p in £1.
The CVA meant that 11 manufacturing jobs were saved and the company survived to exploit the return to higher levels of sales as customers return to investment in new more efficient equipment.