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CVA case study – printing company

The company was incorporated in 1993 and provided print lamination services to the commercial print trade. Gaining success, the company underwent large scale expansion, supplying financial print requirements, property prospectus finishing, car brochures and decorative coatings on magazine covers. 
High turnover gains were forecast when in 2008 the sectors supplied by the company were badly affected by the recession. Marketing budgets were reduced and print requirement minimised.
A going concern review was undertaken and a Time to Pay Arrangement (TTP) was negotiated with HMRC. Although the forward reduction in trade was forecast, the severe impact of bad debts on the company had been underestimated. As a result, in 2011 the bank withdrew its overdraft facility and the invoice finance facility provider reduced the invoice discounting prepayment rate aggressively.
Drastic steps were taken to reduce overheads including the closure of three factories, redundancies, salary reduction and rationalisation of machinery. The directors realised that this was not enough and KSA Group was engaged. Advice had been given to the directors that the best way forward was to arrange for the company to be placed into administration. 
KSA advised that a Company Voluntary Arrangement (CVA) would provide the flexibility to enable restructuring of the company to take place. This was a much less expensive process than administration and it enabled the directors to remain in control of the company.
The business had refinanced to a new invoice finance provider in the month before KSA’s engagement and KSA worked throughout with the new provider.
Major changes to numerous elements of the business were taken to safeguard the future viability of the business. This ranged from the utilisation of credit insurance, the protection of the business from customer bad debt, the reduction in credit offered to customers and further redundancies.
KSA were involved and handled detailed discussions with the company’s bank and other asset finance providers, all of whom remained supportive. Discussions also took place with the company’s various landlords with respect to a significant reduction to overheads (in the form of a consolidation of floor space occupied by the business at each of its premises).
Agreements reached included not only rent reduction but also rent holidays. As a result, landlord overheads were cut significantly. With the cutting of overheads and substantial restructuring, the directors were comfortable that profitability could be achieved in a relatively short time frame. 
At the same time as making the cost reduction measures as described above, the business looked to stabilise and consolidate by marketing its specialist services on a national level, further afield than pre CVA.
Transparency is vital to the success of a CVA. Following the acceptance of the CVA proposal, the directors disclosed in the proposal document it was their intention to hive down the trading element of the company along with the unencumbered fixed assets of the company to a fully owned subsidiary company. 
A management fee was paid by the hived down to company. This allowed the CVA contributions to be paid to the supervisor of the CVA. The management fee, and the cash retained by the CVA company was made and used, respectively, to allow payments to be made to the bank, its lender and other asset finance providers.
The CVA proposal was approved by the creditors at the CVA creditors’ meeting.

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