CVA Case Study – Southern Based Online Retailer

After reading our website, the director of an online retailer contacted Keith Steven of KSA to discuss the company’s present financial situation.  Then, after a subsequent telephone conversation with KSA regional manager Gary Weber, a meeting was requested.

KSA were appointed to assist the company with a Company Voluntary Arrangement (CVA) in late February 2014. Turnover for the year to 30th April 2013, was c£642K which was a 12% increase on previous year.

However, sales to the 2014 year end had dropped by 24% compared with previous year.

The company was encountering financial difficulties due to:

• An error made to their website management in relation to search engine optimisation, resulting in a major downturn in online orders for a period of 3-6 months.
•  A major supplier, whose goods represented c25% of company turnover, gave the company one months notice to stop selling that supplier’s products through a very popular on-line platform.

Premises

• The company operates from leased office premises.

Employees:

•  The company employs 5 staff including the director, all of which have been retained
  Secured creditors
• There were no secured creditors in this case (secured with a registered legal charge or debenture)

Bank & Financial facilities

• The company had an overdraft facility of c£15k which was unsecured and currently not in use
•  The company also had a credit card facility with the bank which is paid down each month

Director

– The director has provided Personal Guarantees (P.Gs) to the unsecured bank.
Connected/associated creditors
– The connected creditor, the director, is owed £3K.  This class of creditor does not attract a dividend under the CVA.  the director agreed to the debt being written off and therefore would not survive the CVA.

Unsecured Creditor debt:

• £81K of which HMRC was 36%. Which means that if HMRC had rejected the CVA, it would not have been approved.

During the production of the CVA It was necessary to negotiate with HMRC and trade creditors to prevent recovery and legal action from being initiated. The nominee’s review was held and the CVA and nominee’s report were subsequently filed at court. The CVA proposed 50p in £1 repayment to unsecured creditors over 5 years and was subsequently approved by the body of creditors at the creditors meeting.