Our client was a growing ITC consultancy, it provided solutions, software, service and support. Growth was too fast for the working capital available and whilst it was profitable cashflow was always a problem. Then sales slowed and the debt wave coming along behind them, threatened to wash over the business. The company was encountering further financial difficulties because of lower than forecast sales, high overheads, a substantial investment in a new CRM programme that was not quite market ready, a small number of bad debts from insolvent clients and incomplete projects.
A classic British story of being undercapitalised, profitable but brought down when HMRC stepped in. Having had several time to pay deals over 2 years, the non payment of a large VAT bill brought the HMRC Debt Management Unit into play. No further TTPs would be provided, the company needed to refinance and EFG (Enterprise Finance Guarantee Scheme) loan was raised to pay off taxes and creditors. What next? The new software took still longer and then the MDs father provided funding to tide the situation over, until next time.
What was the KSA Rescue Strategy? - Company Voluntary Arrangement
We addressed this by setting out a strategy that would restructure the taxes, the trade and landlord debts. We assisted the board look at structural issues too we suggested that the company
- Propose a CVA to reduce the burden of debts
- Make sure any payments were affordable
- Determine surplus employee contracts with CVA
- Dispose of excess and ineffective employees
- Nil cash cost to the company as the Redundancy Payments Office (part of DeBIS) will meet redundancy and lieu of notice claims.
- Determine Expensive Premises Lease
- The current premises lease can be determined as part of the CVA and a new less expensive, more compact premises can be sought if required
The CVA Deal Was As Follows:
- The company proposed to pay creditors £168,600 over 5 years.
- Sales forecast to be £1,138,200 in the hived down to company in the first 12 months of the CVA period
- Number of employees jobs saved was 16
- Discussions were held with the company's secured creditor, Clydesdale Bank plc. The company will continue to repay the EFG loan as per the terms and conditions of the loan.
- The company is still in discussions with the bank with respect to the level of overdraft facility which it requires and the bank is prepared to provide. The directors hope to be in the position to update the creditors at the creditors meeting regarding any conclusion of discussions with the bank regarding the overdraft facility.
- Unsecured creditors would receive: 40p in £1
- Connected (Associated) creditors will receive: (Directors dad); The connected (associated) creditors agreed to waive their claims and that their debt would not survive the CVA.
The CVA was approved, in January 2012, but even with the CVA removing debts, tendering for new work led to problems. This is because there is no credit rating awarded to companies in CVA. So after 10 months the directors managed to raise private investment and the CVA creditors agreed to a one off payment of £100,000 to close the CVA early.
Director Mr J, is happy to act as a referee for KSA Group as he is delighted to say the business is doing really well now that the company has been restructured.
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