A world class engineering company based in the midlands contacted KSA after reading our website on the powers of CVA to restructure property leases and staff costs.
With sales of £5m in 2007 and strong margins (£400k net profit) this is a great example of a small UK company leading the world in its field.
The onset of the recession meant that demand from the automotive sector for its products had fallen by 40% in late 2008 early 2009. The sector was in free fall with GM (General Motors) being its biggest customer, the press were speculating it would in time fail and go into Chapter 11 in the US.
One factory was producing for GM alone and the prognosis of that part of the business was not good, to say the least. The rest of the business was flatlining, but had a strong future pipeline, projects weren't being cancelled but postponement after postponement massively hit cashflow.
The bank had been very supportive as had the independent factoring company. Understandably, the factors had pulled funding on the GM debtor book; this was before the massive company became insolvent and entered Chapter 11 insolvency in the USA. So this led to a serious cashflow squeeze.
Here is a summary of our strategy for recovery.
Company Voluntary Arrangement
o Contains creditor pressure; KSA will handle all creditor calls and actions
o Sharply improves cashflow
o Negotiate with GM for payment of arrears, hold deliveries until paid.
o No new banking facilities required
- Seek a capital payments holiday from secured lenders if needed
- Sell off any unwanted assets
o Refocus directors on running the business, away from firefighting
- Drive sales past break even
o Set strategy for potential loss of GM business
- Remove from rented property save 150,000 pa rent.
- Avoid £100,000 of dilapidations on exit from rented property
- Stop paying £75,000 pa rates
- Nil cash cost of removal
o Board remains in control and shareholders investment not written off
o Retain any tax losses
o No directors conduct investigation
o Make staff redundancies with nil cash cost, terminate contractors agreements with nil cash cost saves up to £100,000 costs.
o Deal with £160,000 VAT underpayment error without cost or penalty
o Freeze £495,000 of unsecured liabilities and landlord claims of £250,000
During our FREE INITIAL EXPLORATORY MEETING which we carefully compared the two main options for restructuring, i.e. pre-pack administration versus CVA. Our strategy was set out in our normal written report (only KSA Group provides a detailed strategy report free of charge).
The decision to avoid administration and use a CVA to restructure the company and its debts, was one that the directors took, but was influenced by the bank too. It had lending as follows:
Barclays Bank plc provided facilities below:
• The company borrows money against the freehold property. The bank had loaned some £1.92m against the building which was worth at best £2.5m
• The bank has provided asset based lending of £750,000.
• The bank also provided an overdraft of £400,000.
With unsecured debt of £745,000 to trade creditors and £322,000 to HMRC for VAT and PAYE, the CVA proposed to pay 46p in £1 over 5 years.
With regards to the invoice discounting facility, Keith Steven of KSA and the directors met and obtained written support from Ultimate Finance plc that it would continue to provide the funding facility.
The board and KSA met several times with Barclays Business Support and its advisors to discuss the CVA in detail and the Bank confirmed that the existing overdraft, the property mortgage and asset based lending facilities would continue as normal.
The CVA was approved by creditors in the spring of 2009. In late 2010 the company proposed to exit the CVA with a final payment of 30p in 1. This was agreed by creditors and the company has now successfully completed the CVA 3 years early.
If you are an engineering company with unwanted factory space, over staffed and need to restructure, then CVA is the most powerful and safest way of doing this whilst avoiding the huge damage that Administration can lead to.
Call the CVA experts now. We can quickly get the business costs DOWN and get the business protected from creditors.
Further recent examples that KSA has turned around or closed in your sector:
December 2010 Midlands based heat components and exhaust manufacturer for the automotive sector. Sales of 2m, CVA approved with 35p in £1. HMRC debts of £200,000.
South east joinery and windows manufacturer, £800k sales. CVA proposed and approved for 44p in £1. HMRC debts £90,000.
London based sign manufacturer, £600,000 sales, CVA approved for 37p in £1 over 5 years. PAYE debts of £45,000 and VAT debts of £30,000.
Liquidation for a Northampton based company manufacturing safety equipment. Lost its main contract and was no longer viable.
Yorkshire based shop fitter and manufacturer; sales of £1.9m, £340,000 creditors agreed a CVA at 30p in £1
Call our engineering insolvency expert Keith Steven on 0800 9700539 or 07974 086779. If you are based in the West Midlands call Russell Mallen on 07989 575933 for a confidential discussion.
We will arrange a free meeting at either our or your offices to discuss ALL options, including the CVA options described above