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CVA case study – Gift and home products supplier

The director of the company contacted KSA to discuss the company’s present financial situation.  After the initial telephone conversation, a meeting was requested and held at the company’s premises. Keith Steven represented KSA at the meeting. The company is a wholesale provider gift and home products  to retailers.

KSA were appointed to assist the company with a Company Voluntary Arrangement (CVA) in May 2010. Turnover for the year to January 2010 was c£3.7m.

The company was encountering financial difficulties due to:

  • The collapse in sales of a key licensed product, having purchased the license renewals (these are purchased in advance of sales).
  • The general downturn in sales during the recession
  •  The failure of the directors to control licenses and new product areas.
  • director spent a long period in hospital and the at home while recovering.
  • A very poor quarter to March 2010

Premises

  •  The company operates from leased premises which are owed personally by the directors.

Employees:

  • The company employed 16 staff including the directors
  • During the restructuring period the company made 2 redundancies and there were also 4 leavers, only 2 of which were replaced.

Bank & Financial facilities

  • The bank was secured with a fixed and floating charge and provided an overdraft facility of £50K.  There were no other loans or banking facilities
  • There was one outstanding finance agreement in respect of the company’s computer equipment

Director

  • The directors had provided no Personal Guarantees (P.G’s) to any creditor .
  • One of the directors was classed as a Connected or associated creditor having made loans in excess of £1.2m available to the company.

Creditors in this class so not usually attract a dividend in the CVA however they do have a vote for the value of the debt.

Unsecured Creditor debt:

  • £845K of which HMRC was c24% –  if all creditors had voted HMRC, in this case, would have been unable to reject the CVA on their own having less that 25% of the debt.

 

Cost & overhead reduction

  • Costs and overheads were reduced by c£1m

The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court.  The CVA proposed 33p in £1 repayment to unsecured creditors over 5 years.
The CVA was accepted by the body of creditors at the creditors meeting.

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