Renewable Company Struggling With Bad Debts and Increased Competition

The Challenge

Reds Technologies, a company trading as The Energy Conservation Group, with a predicted turnover of £3.3m for the coming year, was facing a number of critical issues. The business was **undercapitalised**, which made it difficult to invest in sales and marketing. A major problem was a sharp reduction in credit facilities across its supply chain, with one main creditor reducing its limit from £350,000 to £60,000. This was compounded by a continued government reduction in Feed-in Tariffs, increased competition, and a tough trading period during the summer of 2012. The company’s turnover had already fallen from £9.6m in 2011 to £9m, and a further sharp drop was anticipated. The directors were owed £1.2m and held registered security for these loans, which, in the event of insolvency, would give them significant voting power.

The Solution

The CEO, Simon Booth, contacted KSA Group, and a meeting was held in August 2012. KSA was appointed to assist the company with a Company Voluntary Arrangement (CVA). Prior to KSA’s appointment, the CEO had already implemented a number of restructuring policies, including making nine redundancies to cut overheads. The CVA was proposed as a way to formalize this restructuring and address the company’s debts. The CVA would have allowed the company to contain creditor pressure and provide a structured plan for repayment. The plan also aimed to leverage the directors’ significant financial stake in the company to help influence the CVA vote. The company also had a small amount of unsecured trade debt, around £550,000, which would be managed under the CVA.

The Results

The CVA process was ultimately not pursued. Based on recent trading performance and a lack of confidence in future viability, the directors concluded that a CVA was no longer a viable option. They then sought further advice from KSA regarding alternative insolvency routes. KSA was appointed to liquidate the company via a Creditors Voluntary Liquidation (CVL) in November 2012. While the company could not be saved, the CVL provided a clean and professional conclusion. It minimized the personal risks to the directors and ensured that all creditors were treated equally. This case demonstrates that even when a CVA is not the final solution, professional advice is crucial for navigating a company’s financial crisis. A CVL, in this instance, was the most sensible course of action, allowing the directors to wind up the business responsibly when the prevailing business climate proved too difficult for continued operations.