Telecoms Provider Hit By Weather And Fixed Costs

The Challenge

A telecoms company providing installation and maintenance services, with a turnover of approximately £285,000 in 2010, faced significant financial difficulties. The company’s main problem was that its fixed costs were too high, particularly for its mobile engineers and installers who had to be paid even when they were not working, a weakness exposed by bad weather. The company operated from two leased premises, an office and a retail outlet, and was burdened with an unsecured debt of £160,000. Of this debt, a staggering **94%** was owed to HMRC, making HMRC’s vote crucial for any rescue plan. The company’s director, a connected creditor, was owed £6,500 in loans to the company. The company needed a strategy to reduce its overheads and restructure its debt to survive.

The Solution

In December 2010, the company secretary contacted RMT KSA, and the firm was appointed to assist with a Company Voluntary Arrangement (CVA). The CVA was the core of a comprehensive plan to restructure the business. The company took proactive steps to cut costs, including implementing a new regime to monitor the use of company vehicles to reduce fuel and maintenance expenses. RMT KSA assisted with one redundancy, and the company resolved to use subcontractors for busy periods to reduce fixed payroll costs. The CVA was also used to terminate the lease on one of the company’s two premises, the administration office, and to cancel a vehicle lease that was no longer needed. The CVA proposal offered to repay unsecured creditors 46 pence in the £1 over five years.

The Results

The CVA was successfully accepted by the body of creditors, including HMRC, at a meeting in July 2011. The CVA provided a legal and structured framework for the company to manage its debt and continue trading. The company’s strategic changes, including the redundancy and the shift to sub-contractors, allowed it to reduce its overheads and improve its overall margin. The company adhered to the CVA’s terms and contributions until late 2014, when it was ultimately placed into a Creditors Voluntary Liquidation (CVL). While the long-term outcome was not a full recovery, the CVA provided a vital period of stability and a structured attempt at a turnaround, demonstrating that a CVA can provide a path to survival and a better return for creditors even if the ultimate outcome is liquidation.