IT Services Company Growing Too Fast But With High Overheads

The Challenge

This Surrey based IT consultancy was growing too fast for its available working capital. Although profitable, the company faced persistent cash flow problems. A downturn in sales, combined with high overheads and a substantial investment in an unready CRM program, led to mounting debt. The situation was exacerbated by bad debts from insolvent clients. Despite raising an Enterprise Finance Guarantee loan to pay off taxes and creditors, and receiving further funding from one of the director’s father, the company was ultimately threatened with a winding-up petition from HMRC, who had lost patience after two failed Time to Pay deals.

The Solution

RMT KSA developed a comprehensive Company Voluntary Arrangement (CVA) strategy to restructure the company’s finances and operations. The plan included: proposing a CVA to creditors to reduce the debt burden, determining surplus employee contracts and disposing of ineffective employees with zero cash cost to the company (as redundancy payments would be met by the Redundancy Payments Office), and determining the expensive premises lease, allowing the company to seek a more compact and affordable location. The CVA would also address the debt owed to the director’s father, who agreed to waive his claim.

The Results

The CVA was successfully approved in January 2012, offering unsecured creditors 40p in the pound. The CVA saved 16 jobs and allowed the company to restructure its debts. However, the company faced a new challenge: a lack of credit rating due to being in a CVA. After 10 months, the directors were able to raise private investment. The CVA creditors agreed to a one-off payment of £100,000 to close the CVA early.

With a clean balance sheet and a restructured operation, the company is now doing “really well,” and the director is delighted with the outcome.