IT Logistics Group Suffering Due To Poor Acquisitions And A Loss Of A Contract

The Challenge

A South East-based IT and IT logistics group, with a number of merged companies and a complex structure, faced a severe financial crisis. The group’s sales had fallen from a planned £25 million to just £12 million due to the loss of a major contract. The company’s financial records were in disarray due to a previous finance director’s poor management, resulting in a staggering £2 million debt to HMRC. HMRC was threatening legal action and refusing any new time-to-pay deals. A winding-up petition was even issued against one of the subsidiary companies, which risked causing the entire group to implode. While the group’s main funder, RBS, was supportive, the companies’ poor accounting made it difficult to assess their true financial position and to deal with aggressive creditors.

The Solution

The directors of the group, having learned of KSA’s expertise, hired them to devise a comprehensive restructuring strategy. The solution was to protect the two solvent companies within the group while restructuring the four insolvent subsidiaries through **conjoint Company Voluntary Arrangements (CVAs)**. A key step was to replace the finance director with a new, experienced chartered accountant who untangled the merged accounts and produced separate financial statements for each of the six companies. While this essential accounting work was underway, KSA successfully negotiated adjournments with the winding-up petitioner to prevent the group’s collapse. KSA also assisted the directors in making over 35 redundancies, closing an unwanted office in Surrey, and negotiating a deal with the landlord. The firm provided daily support and guidance to the directors throughout this complex process, and led the dialogue with RBS, which remained supportive of the rescue plan.

The Results

The strategy proved to be a resounding success. All four conjoint CVAs were approved by the body of creditors, including HMRC, which was a critical achievement. The average CVA dividend across the group was 38p in the £1, and the restructuring saved a group of companies that would have otherwise gone into liquidation. The managing director reported to RMT KSA just 15 months later that the businesses were performing ahead of budget and that sales were growing back to their target. This case demonstrates that even with poor records, a tight timescale, and a complex group structure, a business can be rescued through the strategic use of CVAs and expert guidance, ultimately saving a viable business and returning it to profitability.