Film and TV Editors Suffering From Difficult Chairman

The Challenge

A state-of-the-art engineering company, known for its advanced technology and buildings, faced a serious financial crisis stemming from a single, dominant personality: its autocratic chairman. The company had overspent on new buildings and equipment but failed to generate sufficient sales, leading to a critical cash shortage. This resulted in the company being unable to pay its asset-based lenders and its tax liabilities. The problem came to a head when a bailiff, sent by HMRC, arrived at the premises to seize equipment. The chairman, who owned only 16% of the business, was a disruptive force, publicly blaming the bank for the company’s inability to draw down enough funds from factoring, despite the clear problem of poor sales. The company was in desperate need of a structured plan to manage its debt and restructure the business, but its efforts were constantly blocked by the chairman’s refusal to accept outside help or strategic advice.

The Solution

The executive directors, who were “overawed” by the chairman, approached KSA for advice. KSA proposed a Company Voluntary Arrangement (CVA) to calm the creditors and provide a framework for a necessary restructuring. The chairman reluctantly agreed to the CVA but vetoed KSA’s suggestion to appoint a non-executive director to drive the turnaround. The CVA was designed to manage the debt and allow the company to survive, offering a dividend of only 29p in the £1 to its creditors. The directors also agreed to a CVA condition that would see KSA implementing a hands-on turnaround plan and appointing a non-executive director to the board after the CVA was approved. The plan was supported by Barclays Business Support, a team of dedicated turnaround specialists, who recognized the CVA as a good, workable plan.

The Results

The CVA was approved in November 2004 despite the chairman’s belligerent behavior. However, the chairman, for a third time, decided he knew best and continued to block the agreed-upon management changes and the appointment of the non-executive director. Although the directors eventually removed him in late 2005, it was too late. The company ran out of time and ceased trading in early 2006. This case, despite the CVA being well-structured and the company having a good foundation, ended in failure. It serves as a powerful cautionary tale about the importance of strong, decisive management. The CVA’s approval created an opportunity for the company to survive, but the chairman’s actions prevented the necessary changes from being implemented. In the end, a single individual, who was not even a majority shareholder, was able to wreck the business by refusing to accept professional advice and to implement the agreed-upon recovery plan.