KSA uses CVA to rescue a London-based furniture designer retailer
Our client was introduced to us via their accountants in West London. We first started talking to the company's finance director in April 2009. Keith Steven met the FD and looked at the issues, the company had made a £440,000 loss to the year end in March 2009, stock write downs were still required, the systems didn't know what stock was left, cashflow was very tight, HMRC was shouting and margins falling fast.
Keith suggested a radical restructure with the closure of 5 non-performing retail outlets and the reduction of staff and overheads. This was TOO radical for the family shareholders.
In addition to refinancing the business by agreeing to provide new working capital (the MD sold her home to fund this) the company offered a time to pay deal to HMRC of £10,000 per month, which we didn't think was affordable.
Around one year later we were asked to go and meet the 7 man board and set out a plan for the rescue of what was now a failing business. Not quite at the cliff edge but perilously close.
Again we set out the plan, cut costs by closing unprofitable stores which they had kept open despite losing money at the retail operations level, ie the stores were not contributing to central overhead, far from it they were absorbing 300,000 per annum. Retain the 5 good stores, remove circa 55 people, close the warehouse and outsource that function.
To allow the fast determination of the retail leases we proposed that the company use a company voluntary arrangement; utilising little known case law and the CVA process we could kill the leases. (Doorbar v Alltime Securities is the case law in question). The warehouse and head office would be retained until after the CVA was completed and the business downsized.
Having been appointed in May 2009, we set to work; the 5 stores all held sales and boosted cashflow. Old stock was reduced to clear by 50-60% and good stock by 30%. Two warehouse sales were held, this cleared a lot of old stock and generated 250,000 of cashflow. It also got great publicity in the Evening Standard and Daily Mail for example. RBS removed the 150k overdraft despite the debt being secured by personal guarantees against directors homes. This didn't help cashflow but was not unexpected. The merchant credit card facility was maintained though as was the leasing and loan repayments.
KSA Group held discussions with the employees and guided the employer on reducing headcount. The shops were closed after three weeks and the headcount was reduced by 45 people in the shops and head office. The DeBIS Redundancy Service is handling all of the redundancy claims. So the company saved on paying out redundancy costs in excess of 100,000.
After about 8 weeks of restructuring work, the CVA proposal was put together and discussed with the bank.
Then a former landlord issued a winding up petition. This required urgent legal action and High Court injunction was obtained against the petitioner to prevent the petition being advertised in the Gazette. For a retail business with a huge design led reputation, the possible publicity regarding the petition could have been the final blow. The CVA continued to be progressed and the major creditors were part of the process. As a matter of policy KSA Group always discusses the draft plans with the major creditors such as the bank, HMRC and suppliers. In this case many of the suppliers were from Asia and despite some language problems, we had good support from these creditors who have probably not even heard of CVA.
As usual we built in a profit ratchet to allow higher payments to creditors if the company made more profit than originally anticipated. A dividend of 59p was proposed and agreed by 100% of creditors at the creditors meeting.
Update autumn 2013:
The company has since traded quite well with the summer sales being modestly ahead of the CVA forecast. The headcount was reduced by a further 8 people after the summer.
The winter season is under way and first signs are pretty positive. The business is now at breakeven levels of sales so much hard work is still required. The busiest period for the company is Christmas and the company hopes to make a significant profit in that period and the January sales.
The MD has retired from the board and a new MD with excellent retail credentials is in the hot seat.
If you are a retailer with non performing stores that are losing money and the company is at risk of failure. Call the CVA experts now. We can quickly get the business costs DOWN and get the business protected from creditors.
Call our retail insolvency experts Eric Walls on 07787 278527, or Keith Steven on 0800 9700539 or 07974 086779, for a confidential discussion. We will arrange a free meeting at either our or your offices to discuss ALL options, including the CVA options described above.