Dorset based bar operation – CVA case study

The financial director of the company contacted Sarah Massey 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 and held at the company’s premises.

The company operates within the leisure sector, primarily within the licenced trade. KSA was appointed to assist the company with a Company Voluntary Arrangement (CVA) in August 2015.

Turnover for the 2016 trading year was c£450K. 

The company was encountering financial difficulties due to:
– The high cost of staff
– Historic HMRC VAT debt liability which had been recently identified.
– The company had not submitted VAT returns since incorporation and had only been paying the HMRC VAT assessments. 
Premises
– Trading premises are leased on an informal ad hoc basis.

Employees:
– The company employs 8 staff including the director
– It was not necessary to utilise the CVA to reduce costs via redundancies. However, redundancies were made prior to KSA’s appointment.
Bank & financial facilities
– The bank is unsecured and provides a small overdraft facility on a current account.
– The company has no lease or finance agreements

Director
– The director has provided Personal Guarantees (P.G’s) to the bank in respect of the overdraft facility 
– The director is owed c£20K as a connected (associated) creditor.  Connected creditors do not receive a dividend in the CVA and it is a usual requirement that connected creditors are expected to waive their claim to those monies and that claim does not survive the CVA.

Unsecured Creditor debt:
– c£125K of which HMRC was 100% 

Cost & overhead reduction 
– Overheads and cost of sales have been reduced to an absolute minimum without compromising quality and service. 

New activity
– Customer offers and price incentives to increase footfall in quieter periods
– Prolific, wider and diverse marketing activities.
– Targeted PR activity
– Greater customer focussed events
– New staff training programme.

The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court.  The CVA proposed 44p in £1 repayment to unsecured creditors over 5 years.

HMRC provided their response accepting the CVA however, their modifications (conditions of acceptance) included increased contributions which increased the minimum dividend payable to creditors over the life of the CVA to 59p in £1 

The CVA was accepted by the body of creditors at the creditors meeting and the company is now in a CVA.