Online Retailer Hit By Website Problems

The Challenge

An online retailer, with a turnover of approximately £642,000 in 2013, faced a sudden and severe financial crisis. Despite a previous year’s increase in sales, the company’s turnover dropped by 24% in 2014, with two key factors to blame. First, an error in its website’s search engine optimization (SEO) led to a major downturn in online orders for several months. Second, a major supplier, whose products made up about 25% of the company’s turnover, gave them one month’s notice to stop selling their goods on a popular online platform. These two events combined to create an urgent cash flow problem and a total unsecured debt of £81,000. Of this debt, HMRC was owed 36%, meaning its vote was crucial for any restructuring proposal. The director also faced personal risk due to a personal guarantee on a £15,000 unsecured bank overdraft facility.

The Solution

In late February 2014, the director contacted KSA to assist with a **Company Voluntary Arrangement (CVA)**. The CVA was designed to address the company’s liabilities and provide it with the breathing room to recover from the unexpected drop in sales. During the CVA’s production, KSA negotiated with both HMRC and trade creditors to prevent them from taking legal action. This was a critical step in a situation where the company’s survival was dependent on gaining the support of its creditors. The director also agreed to write off a £3,000 loan owed to them, a common practice to ensure that creditors receive the maximum possible return. The CVA proposed to repay unsecured creditors 50 pence in the £1 over a period of five years.

The Results

The CVA was successfully approved by the body of creditors at the creditors’ meeting. This outcome was a significant success as it allowed the company to avoid liquidation and continue its business operations. The CVA provided a legally binding framework for the company to manage its debt, which was essential given its fragile financial position. The approval also meant that all five of the company’s employees were retained, securing their jobs. By using the CVA, the company was able to move past the financial difficulties caused by the SEO error and the supplier’s action. The case demonstrates how a CVA can be a powerful tool for a business facing a short-term crisis, providing a path to recovery and long-term stability.