CVA Case study – Southern England based hair salon company

This company was incorporated in May 2009 and operates as a boutique hair salon. One of the company’s business advisors contacted KSA to discuss the company’s present financial situation on behalf of her client. After an initial telephone conversation and  meeting between KSA regional Manager, Gary Weber and the company’s business advisors, a subsequent meeting was held in October 2013, which also included the company directors. The meeting was held at the company’s premises.

KSA were then appointed to assist the company in November 2013.

Turnover for the 2013 financial year, as detailed in the draft accounts, was of £225 showing a loss of £1.5K.  During the first year of the CVA, sales are forecast to remain the same. However, due to radical restructuring, profit after tax is predicated to be £19K.

The company was encountering financial difficulties due to:

•  Poor financial management.
•  Overstocking of hair products
•  Lack of focus on the part of the director

Premises

• The company operates from leased premises.
•  Discussions were held with the landlord of the leased premises; the landlord has been understanding and has been kept up to date with progress.

Employees:

• The CVA meant that 5 jobs were saved with no redundancies

Bank & Financial facilities

•  There were no secured creditors
•  The company had several loan facilities
•  The company had an overdraft facility which was maintained in credit
•  The company also had 2 credit card facilities
•  There were no other financial facilities at the time

Directors

• The director had provided Personal Guarantees (P.Gs) in respect of the company’s loan facilities which were unsecured.  This meant that the personal guarantees, which the director had provided, would be relied upon.

In light of this expectation, the loan facilities were written into the unsecured creditors as a contingent £1 with an explanation that, although as creditors they were owed balances, those balances would be settled by the director via his P.Gs. This had the effect of increasing the proposed dividend to the rest of the body of creditors.

The director had also accrued an Overdrawn Director’s Loan Account (ODLA), however since he would be making monies available to the loan facility creditors, the ODLA would be deemed repaid on completion of the P.Gs.

Unsecured Creditor debt:

– £155K of which HMRC was 97%
The nominees review took place in May 2014. The CVA was then filed at court and subsequently distributed to all creditors. The CVA was approved at the creditors meeting on in June 2014 with a proposed dividend of 52p in £1.