CVA case study moving to a liquidation

Reds Technologies Limited

Reds Technologies was incorporated on 13th April 2010, trading as The Energy Conservation Group, operating mainly within the domestic building sector in renewable energy & domestic sustainability and was based in Wimborne, Dorset. Employing 17 people.

The CEO, Simon Booth, contacted KSA Group after reading the company rescue website as the company was grappling with a number of issues:

• Under capitalisation
• Insufficient available funds to invest in developing the sales and marketing abilities of the business.
• Reduction & removal of credit facilities across the full supply chain, led predominantly by the main creditor who reduced credit limit from £350k to £60k, another creditor requested  payment for all goods on Pro-forma basis and a third agreed to provide a £35k credit limit on 14 day payment terms.
• Falling turnover due to the continued Government reduction in Feed-in Tariff, leading into a very tough July and August trading period school holidays, Olympics etc.
• Increased competitive environment
• Turnover to 31th August 2011 £9.6m and £9m in 2012 predicted T/o for following year (at appointment date) £3.3m.

A meeting was held between the director and KSA regional manager; Hugh Gabriel, on 23rd August 2012. KSA Group was appointed to assist the company with the production of CVA proposals on 30th August 2012.

Prior to KSA Group’s appointment a number of business restructuring policies had been implemented since the arrival of the CEO in November 2011. The first took place in December 2011.

At appointment trade (unsecured creditors) were owed c. £550k of which HMRC was owed c. £33k

• No debt or facilities owed to the bank
• Directors held registered security in respect of £1.2m of loans made available to the company and were therefore classed as secured creditors. However, company assets would not  cover security therefore under a CVA scenario the secured creditors would be able to vote in respect of any balance which was deemed unsecured.
• Asset cover was c.5% therefore directors would have been able to vote for 95% of their debt which may have controlled the vote. However, it should be noted that the unsecured part of  their debt would not have been bound by the CVA.
• 9 redundancies made to cut costs further to reduce overheads further.
• A meeting of the directors of the company on 8th October 2012 determined, based recent trading performance & future confidence, it was considered that CVA was no longer viable.  The directors sought further advice from KSA in respect of alternative insolvency routes i.e. liquidation/ administration.
• The company appointed KSA to liquidate the company on 7th November 2012.

This goes to show that even if the CVA does not become viable then KSA can still help to bring the matters to a clean conclusion minimising the personal risks, and treating all creditors equally, by undertaking a creditors voluntary liquidation.
It was clear that the directors had been sensible in their dealings and had tried to save the business but the prevailing business climate was just too difficult for the business to continue.