Recruitment Business Based in Scotland Seeing Halving of Turnover

The Challenge

A Scottish recruitment business experienced a sharp decline in turnover, from a peak of £6.75m in 2007 to £3.5m in 2009, due to the recession. This was compounded by bad debts from the construction industry, leading to worsening cash flow and an inability to meet a £43k monthly Time to Pay deal with HMRC. The company’s total unsecured debt included £237k in PAYE, £299k in VAT, and £80k to trade creditors. Additionally, the director, Mr. M, had a significant overdrawn current account of £75,000. The business was insolvent, (failing each of the insolvency tests!) as its working capital could not sustain the debt repayments.

The Solution

RMT KSA was engaged to find a rescue solution. After a thorough review, a Company Voluntary Arrangement (CVA) was chosen as the best option, as the business was fundamentally viable despite its legacy debts. A profit ratchet was included in the CVA to ensure creditors would receive additional payments if the business’s performance exceeded forecasts. To cut costs, the company was advised to terminate a lease on one of its offices and reduce staff costs. The director, Mr. M, agreed to repay his overdrawn account by making an initial payment of £20,000 and then paying the balance over the five-year CVA term, with his salary adjusted to facilitate this repayment.

The Results

The CVA was a complete success. The CVA proposal, which offered a repayment of 33p in the pound, was accepted with a 100% vote in favour by creditors in December 2009, including HMRC, contrary to the belief that they do not support Scottish CVAs. Since the deal was approved, the business has been profitable in its first nine months. With the legacy debts restructured, the company continues to trade well.

Mr M was very pleased with the work of RMT KSA and so has recommended to a struggling hotel and a recruitment company he knew.