UK Based Restaurant Business Suffering Due To Inadequate Cost and Stock Control

The Challenge

A company with a turnover of approximately £350,000 in 2015 faced significant financial difficulties despite its size. The problems stemmed from a combination of **undercapitalisation**, HR issues, and inadequate cost and stock control. The company was operating from premises on a long-term lease and had a secured bank loan and overdraft facility, along with two additional unsecured loans. A major issue was the director’s personal exposure, as they had provided personal guarantees to the bank and several other creditors. The company was also burdened with unsecured debt of £150,000, with HMRC holding a significant 60% of that total. HMRC’s collections officers had visited the premises more than once, threatening to remove goods and putting the business at immediate risk of shutdown.

The Solution

The company’s director contacted KSA, who was appointed in late 2014 to assist with a **Company Voluntary Arrangement (CVA)**. KSA immediately began negotiating with HMRC’s collections officers, successfully preventing any goods or stock from being removed from the premises. The CVA proposal was designed to be a viable alternative to liquidation, offering a repayment of 32 pence in the £1 to unsecured creditors over five years. The director, as a connected creditor, also agreed to waive their claim to a director’s loan account, which was a standard condition for HMRC’s acceptance. The plan was to use the CVA to restructure the company’s debt and provide the breathing room necessary to address its underlying operational problems.

The Results

The CVA was ultimately unsuccessful. While the proposal was well-structured and offered a clear path to recovery, HMRC rejected it. The reason cited for the rejection was the company’s “historic compliance,” which highlighted a key point for HMRC’s decision-making process. The creditors’ meeting was adjourned for two weeks to allow for an appeal to HMRC to reconsider its decision; however, the appeal was unsuccessful, and the rejection was upheld. As a result, the CVA was formally rejected at the adjourned meeting. The company and its director were left to consider their position, with all 20 jobs still at risk. This case demonstrates that even with a good plan and a strong desire to save a company, a CVA can be derailed by past compliance issues, particularly when a major creditor like HMRC holds a significant proportion of the debt.