Manufacturing Company Facing A Loss Of A Contract

The Challenge

An Essex-based company, incorporated in 2007, was facing significant financial difficulties due to legacy debts. The business had suffered from a downturn in trading activity, a fall in turnover to £336,000, and the loss of a vital contract. As a result, its debts to both HMRC and trade creditors had grown to an unmanageable level. The total unsecured debt stood at £192,125, with HMRC owed a substantial £133,625, representing approximately 70% of the total. The directors had identified the problem and sought professional insolvency advice to deal with the severe cash flow pressures and prevent a forced liquidation.

The Solution

One of the directors contacted RMT KSA, who was appointed on December 5, 2012, to assist with a Company Voluntary Arrangement (CVA). Prior to KSA’s appointment, the company had already taken proactive steps to mitigate its problems by replacing the lost contract with another and making one redundancy to reduce overheads. The CVA was proposed as the ideal mechanism to provide a formal, legal framework for the business to restructure its debts and continue trading. The CVA proposal offered a dividend of 41p in the £1 to be paid to the unsecured creditors. This plan was designed to be a viable alternative to liquidation, providing a better return for creditors while saving the business.

The Results

The CVA was a complete success. HMRC, which held the majority of the unsecured debt, approved the CVA with standard modifications on July 2, 2013. The CVA was then formally approved by the entire body of creditors at a meeting held on July 16, 2013. The CVA’s approval was a critical milestone, as it allowed the company to avoid liquidation and continue its operations. The successful restructuring saved 7 jobs, which would have been lost had the company been wound up. The outcome demonstrates that a CVA can be a powerful tool for a company with a viable business model to overcome legacy debt and cash flow issues, providing a clear path to recovery and long-term stability.