The director of an engineering company contacted Marie Moody of KSA to discuss the company’s present financial situation. A meeting was requested and held at the company’s premises with KSA regional manager Hugh Gabriel.
KSA were appointed to assist the company with a Company Voluntary Arrangement (CVA) in August 2011. Turnover for the year to August 2011, was c£2.1M.
The company was encountering financial difficulties due to:
- Undercapitalisation
- Falling/delayed orders due to the credit crunch
- A bad debt of £320,000 in late 2010, and
- A poor contract resulting in a £100,000 loss.
Premises
- The company occupied office and work shop units which were on a leased basis. The company used the CVA to negotiate vacating one unit.
Employees:
- The company employed 29 staff including the director
- In this case the CVA was not used to assist with redundancies.
Bank & Financial facilities
- The company had no overdraft facility and usually operated the current account in a good credit position.
- The Company had a £100K EFG loan over 4 years provided by the bank
- The company operated an invoice finance facility which was provided by a company alternative to the bank.
- The Bank and Invoices finance company held debentures and legal assignments which meant that they are secured creditors and as such continue to be paid as usual during the CVA.
- In this case the CVA was not used to assist with the cancelation of any finance agreements.
Director
- The director had provided Personal Guarantees (PGs) to the bank and invoice finance company. The CVA is sometimes a trigger for the creditor (especially if unsecured) to seek to rely on personal guarantees provided. This kind of negotiation is something KSA are well versed in and deal with regularly.
- The director had made loans available to the company of c£150K.
- The director would therefore be classed as a connected creditor: It is a usual HMRC modification (condition of acceptance) that all connected creditors agree to waive there claim to any monies owed and that claim does not survive the CVA. However, they are permitted to vote at the creditors’ meeting.
Unsecured Creditor debt:
- £680K of which HMRC was 44%
Cost & overhead reduction
- A new regime has been implemented with new procedures to reduce energy wastage
- A strategy has been implemented to reduce equipment hire costs by improved planning, and eliminate expenditure on non-essential items.
- There was a freeze on shop floor wages (there has been no increase since July 2010 and the wages were held at current levels until mid 2012).
- Some senior managers have accepted a reduction in salary until financial conditions improved.
- The company in the past has made losses on some direct export orders but not those via a UK based engineering house so the company will not undertake export orders, unless via UK based engineering contractors.
- The director aims to maintain the same level of margins and feels confident that this can be achieved given that the company’s order book, was at the time, worth approximately £1.8M.
- As detailed previously significant savings were made on rent, rates and other associated property related costs.
- The workshop floor has been reconfigured and cleared of clutter to maximise efficiency
- A Winding Up Petition was served by a creditor in November 2011 and withdrawn during the same month after negotiations with the creditor. The petition had not been advertised.
The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court late December 2011. The CVA proposed 42p in £1 repayment to unsecured creditors over 5 years.
HMRC initially rejected the CVA, however after negotiations with KSA, the CVA was approved during which time the initial creditors meeting was adjourned for two weeks.
The CVA was accepted by the body of creditors at the return creditors meeting in late January 2012.
