Southern Based Interior Design Company Accumulated Historic Debts

The Challenge

A high-end Southern based interior design consultancy experienced rapid growth, with turnover increasing from £356k to £1.1m in one year. This fast expansion, however, left the company severely undercapitalised, with no financial reserves to fund its growth. The company accumulated historic arrears with HMRC and trade creditors, which became unmanageable. The situation culminated in the company being served with a winding-up petition in October 2013, which was presented in court with a hearing date set for late November.

The Solution

The company’s financial consultant contacted RMT KSA, who were appointed to assist in late October 2013. The first priority was to negotiate with HMRC, successfully getting an undertaking that the winding-up petition would not be advertised in exchange for a draft CVA proposal. This action led to the court adjourning the winding-up hearing, giving the company time to finalise and present the CVA to creditors.

RMT KSA also assisted with negotiations with the landlord, successfully arranging for the surrender of one lease to reduce overheads and agreeing to an affordable rent deposit replenishment period. Despite the CVA efforts, the company’s bank froze its accounts after discovering the winding-up hearing, requiring RMT KSA and the client to secure a validation order to unfreeze the accounts and continue trading.

The Results

The strategic negotiations and CVA proposal were highly successful. The CVA was approved by 100% of the creditors at the meeting in early December 2013, with HMRC approving it with standard modifications. The company’s director agreed to repay their overdrawn loan account as an additional contribution to the CVA. The approved CVA allowed for a dividend of 46p in the pound to creditors, a significantly better outcome than what would have been achieved in a liquidation. This process allowed the company to survive, shed its unsustainable overheads, and move forward with a manageable debt repayment plan.