London Recruitment Company Expansion Plan Fails

The Challenge

A London-based recruitment company with three offices, specializing in accountancy and media placements, faced a severe financial crisis. An ambitious and rapid expansion plan had backfired, with costs quickly outstripping sales, leading to substantial losses. As a provider of temporary staff, the company’s PAYE debts were extremely high, and its attempts to secure a “time to pay” deal with HMRC were in jeopardy. Despite some initial positive feedback, HMRC ultimately changed its approach and issued a winding-up petition, pushing the company to the brink of liquidation. The company’s owner was based in the Southern Hemisphere, and the local managing director was struggling to find a solution on his own.

The Solution

The managing director, after a recommendation from a friend, contacted KSA for urgent assistance. KSA immediately requested that HMRC not advertise the winding-up petition, a request that was granted. This action bought the company crucial time to prepare a Company Voluntary Arrangement (CVA). The CVA proposal was innovative and designed to offer a strong return to creditors, particularly HMRC. The plan included a one-off payment of £150,000 to be paid to the supervisor within three months. Additionally, the company proposed to pay 50% of its future post-tax profits to creditors. This approach allowed the company to rebuild its cash balance over a three-month period by not having to pay PAYE and VAT, providing a vital period of financial relief.

The Results

The CVA was a complete success. The creditors, who were predominantly HMRC, received a good return of over 55p in the £1 in the first year and were satisfied with the proposal. Despite the director’s concerns about the creditors’ meeting, no one attended, which is a common occurrence. The CVA provided a legal and structured framework for the company’s turnaround, enabling it to avoid liquidation and continue trading. The innovative CVA approach allowed the company to address its overwhelming tax debts, protect its business, and ultimately achieve a successful recovery. The case serves as a powerful example of how a CVA can be used as a flexible and effective tool to rescue a business facing a winding-up petition, especially for companies with high PAYE debts like those in the recruitment sector.