Civil Engineering Company Loses Major Contracts

The Challenge

A civil engineering company based in the Midlands, with a turnover of approximately £10 million in the 12 months to June 2022, faced significant financial difficulties. The company’s problems stemmed from the unexpected loss and cancellation of several major contracts, which caused sales to be forecast to drop sharply to £3.5 million in the next year. This downturn left the company overstaffed and burdened with high overheads. Although the company remained profitable with a solid order book, slow payments from debtors exacerbated its cash flow issues. Creditors, particularly a disgruntled one, posed a major threat, as a winding-up petition was issued, diverting management time and putting the company’s future at risk. The company needed a solution to address its immediate cash flow problems, reduce overheads, and maintain creditor confidence while proving its long-term viability.

The Solution

The company’s directors were introduced to RMT KSA by another insolvency firm that recognized RMT KSA’s expertise in handling CVAs for construction companies. RMT KSA recommended a Company Voluntary Arrangement (CVA) as the best option. The CVA was the ideal tool to ensure higher returns for creditors than a liquidation would have. RMT KSA worked with the company to implement several cost-cutting measures, including vacating unwanted leased premises in Leicestershire. RMT KSA’s team negotiated with creditors to prevent further legal action and successfully convinced the creditor who had issued the winding-up petition to withdraw it and support the CVA. The company’s banking facilities were kept in place, as the bank was a secured creditor and remained outside the CVA process. The CVA proposal forecasted a continuation of profitable trading with sales of £3.44 million in the first year of the CVA.

The Results

The CVA was a complete success, with creditors approving the proposal in January 2023. The CVA allowed the directors to remain in control of the business, protecting the jobs of all five employees. The company committed to paying creditors a total of £1.8 million over five years, which represents a 100p in the £1 return. The director also agreed to repay their loan account over the first 24 months of the CVA. This outcome was vastly superior to a liquidation, which would have resulted in zero recovery for creditors. The managing director has also committed to making necessary business and management changes to ensure the company’s future viability. The CVA provided the company with the stability and breathing room it needed to implement its turnaround plan and continue its operations, demonstrating the power of a CVA to rescue a company from a winding-up order and return it to a healthy financial position.