Highway Maintenance Company Brought Down By Bad Customer Debts

The Challenge

A highway maintenance company, with a recent turnover of £2.5 million, faced a critical financial situation despite its rapid growth. The company’s turnover had increased by an impressive 107% in the previous year, with a forecast of £3.1 million for the next. However, this quick expansion came with significant problems: it was undercapitalised, had an inadequate invoice finance facility for its large and slow-paying debtor book, and suffered from poor credit control and financial reporting. These issues led to the accumulation of £876,233 in unsecured debt, with a staggering 93.5% owed to HMRC. The company’s attempts to use a “Time To Pay” (TTP) arrangement with HMRC had failed, leading to threats of winding-up proceedings. The directors also had personal guarantees on various company asset lenders, putting them at personal risk.

The Solution

The company secretary contacted KSA in November 2013, and KSA was appointed to assist with a Company Voluntary Arrangement (CVA). The CVA was proposed as a way to restructure the business and manage its overwhelming debt. As part of the plan, the directors agreed to waive their claims on loans they had made to the company, a common condition for HMRC’s acceptance. The CVA aimed to provide a structured repayment plan to creditors while allowing the company to continue trading. The company’s future viability was supported by a strong sales forecast, with a projected turnover increase to £3.1 million in the CVA’s first year, which was intended to convince creditors to support the plan.

The Results

The CVA process was ultimately unsuccessful. Despite RMT KSA’s efforts to address HMRC’s concerns following their initial rejection, HMRC maintained its decision not to accept the proposal. With HMRC holding such a large percentage of the unsecured debt, its rejection effectively made the CVA unworkable. Consequently, the company was placed into Creditors Voluntary Liquidation (CVL). While the CVA did not succeed, the process itself provided a clear path and a formal attempt to save the business. During this period, the company was able to operate and save 59 jobs with only two redundancies, proving that a formal restructuring attempt, even if ultimately unsuccessful, can provide a period of stability and a chance for the company to reorganize before liquidation.