Scottish Based Retailer Director Illness

The Challenge

A single-store retail company faced a severe financial crisis driven by multiple factors. The company’s turnover had decreased by 12% to £212,000 in 2013, and it was struggling with significant debt. A key issue was the director’s prolonged illness, which led to a lack of adequate management. This absence caused serious arrears with suppliers, a decline in sales due to insufficient stock, and an inability to meet payment schedules with both HMRC and other suppliers. With an unsecured debt of £148,000, including a £15,000 bank overdraft and a credit card balance, the company was on the brink of insolvency, with the bank even pursuing the director’s personal guarantees.

The Solution

The company engaged KSA, an advisory firm, in late January 2014 to implement a Company Voluntary Arrangement (CVA). This restructuring plan was designed to allow the company to continue trading while paying off a portion of its debt. As part of the CVA, the company took difficult but necessary steps to reduce costs, including making three of its six employees redundant. Negotiations were also successfully held with the landlord, who was supportive of the plan. The proposed CVA outlined a repayment schedule of 35 pence for every £1 owed to unsecured creditors over five years. The plan also addressed other debts, such as a £40,000 secured pension loan, which was repaid in full. For three connected creditors owed £36,000, the plan allowed them to convert a portion of their debt into convertible redeemable preference shares, with the remaining debt being written off.

The Results

The CVA was successfully approved by the majority of creditors, even though HMRC, which held a 20% share of the unsecured debt, was a minority creditor and could not single-handedly block the proposal. The approval of the CVA enabled the retail company to avoid liquidation, giving it a structured path to recovery. By restructuring its debt and reducing operating costs, the company was able to stabilize its financial situation. The arrangement provided a formal and legally binding solution that allowed the business to continue operating, protect the remaining jobs, and provide a clear repayment plan to its creditors, ultimately saving the business from collapse.