Furniture Designer Retailer

The Challenge

A furniture designer retailer, facing a significant £440,000 loss in 2009, was in a precarious financial position. Key issues included a poor inventory management system, tight cash flow, mounting HMRC debt, and declining profit margins. The company’s management was initially reluctant to take the drastic but advised and necessary steps of closing five non-performing retail outlets, which were absorbing £300,000 annually. After Keith Steven, RMT KSA Strategic Turnaround Experts’ suggestion, one of the directors sold her home as a way of injecting new capital, but the situation continued to worsen.

The Solution

After a year of continued decline, RMT KSA was brought in again to present a plan to the seven-member board. This time, the company was on the “cliff edge” of failure. The proposed solution involved a radical restructure using a Company Voluntary Arrangement (CVA). The plan included:

• Closing the five unprofitable stores to stop the financial bleeding
• Reducing the headcount by approximately 55 people
• Outsourcing the warehouse function to cut costs
• Using the CVA process and specific case law (Doorbar v Alltime Securities) to terminate the unprofitable retail leases

The company also held warehouse sales to clear old stock and boost cash flow, generating £250,000. The company were advised on managing redundancies, which were handled by the DeBIS Redundancy Service, saving the company over £100,000 in redundancy costs.

The Results

Initially, a former landlord issued a winding up petition, however this was stopped with a High Court injunction, protecting the company’s reputation. In the meantime, the CVA was successfully put in place and approved by 100% of creditors. The agreed-on plan included the return to creditors of 59p for every £1 of debt owed. As of autumn 2013, the company had stabilised, with sales modestly ahead of forecast, and was operating at break-even. The headcount was further reduced by eight people, and a new Managing Director was brought in to lead the company’s future growth. The CVA successfully saved the core business and its five profitable stores.