Case study – Southern Based Interior Design Company

Incorporated November 2002, the company is high-end residential and commercial interior design consultancy. The company’s financial consultant contacted KSA after reading the website.  A meeting was subsequently held between the director, the company’s financial consultant and KSA regional manager; Malcom Gray,  in October 2013. KSA were appointed to assist the company in late October 2013.

Turnover for the financial 2013 year was £1.1m compared with the previous year of £356K

The company is encountering financial difficulties due to:

1. Rapid growth and being undercapitalised
2. Fast expansion into larger premises and increased staff
3. No reserves or financial facilities from which to fund the growth
4. Historic accrued arrears with HMRC and trade creditors increased past manageable levels

These difficulties culminated in the company being served a winding up petition which was presented at court in October 2013  with a hearing date in late November.

NB: the winding up petition was served prior to KSA’s appointment.

• KSA negotiated with HMRC and received an undertaking from HMRC that the winding up petition would not be advertised on receipt of a DRAFT CVA.
• The winding up petition (having not been advertised) led to the hearing being adjourned. This permitted adequate time to complete the final CVA, distribute to creditors and hold the creditors meeting.
• In addition the adjournment time left a provision for the chairman of the creditors meeting to, if necessary, adjourn the creditors meeting for a fortnight before the adjourned winding up hearing would need to be advertised.
• Client appointed Lex Law to ensure adjournment was secured.
• Even though the winding up petition was not advertised, the bank still obtained information that a winding up hearing had taken place and froze the company’s account.  The company had to further instruct Lex Law to obtain a validation order to unfreeze the company’s account prior to the adjourned hearing date.
  Landlord
• KSA also assisted with negotiations with the company’s Landlord, to reduce the unit space occupied (which would require the Landlord to surrender one lease).
• After negotiation relating to costs the surrender of a lease was agreed by the Landlord.
• Since the Landlord had already drawn down on the rent deposit, KSA negotiated an affordable replenishment period with the Landlord

Bank had no exposure

• no loan or overdraft facilities.
• No security

Overdrawn Director’s Loan Account

• There was an overdrawn director’s loan account of less than £20K. it was proposed that this would be repaid by the director as additional CVA contributions over the first 6 months of the CVA.

Unsecured Creditor Debt

• £525K of which HMRC was 47%
  HMRC approved CVA with standard modifications in late November 2013. CVA was approved by 100% of the creditors at the creditors meeting in early December 2013
• Dividend 46p in £1