Haulage and Logistics company Affected By Pandemic Downturn

The Challenge

A long-established haulage and logistics company, trading for 20 years with a turnover of £11 million until late 2018, faced a devastating financial crisis. The company, which employed 80 people, saw its business decline dramatically due to problems on the High Street, which led to a number of its retail clients entering administration or liquidation. The final blow came with the COVID-19 pandemic and associated lockdown, which caused a significant drop in demand for its services. The company’s turnover was forecast to fall to just £5 million for 2020. This left the business with overcapacity at two sites and a number of legacy costs from vehicle leases and contracts, as well as an unsustainable number of staff, half of whom were furloughed. The company was burdened with a secured debt of £266,973 to its bank and an overwhelming unsecured debt in excess of £2 million, which included trade, HMRC, and potential redundancy payments.

The Solution

To address the crisis, the company proposed a Company Voluntary Arrangement (CVA) as a rescue plan. The CVA was designed to bring the company back to profitability by tackling the most significant financial burdens. A key part of the plan was to close down the money-losing home delivery portion of the business. This strategic move meant making 53 people redundant, with the government covering the redundancy payments. The CVA also provided the legal framework to exit an expensive lease at no cost and cancel other onerous contracts. This enabled the company to shed unsustainable costs and right-size the business for the new economic reality. The CVA proposal offered creditors a substantial return, with a total of over £600,000 to be repaid over the next five years.

The Results

The CVA proposal was a resounding success, with creditors accepting the plan in July. The approval of the CVA allowed the company to immediately implement its restructuring. By closing the home delivery operations, the company was able to cut its costs by £175,000, not including the savings on staffing. The company successfully exited an unwanted lease at no cost and cancelled other costly contracts, freeing up vital capital. With its core business streamlined and overcapacity eliminated, the company has continued to trade in line with expectations, repaying its creditors as planned. The CVA proved to be a powerful tool for navigating a catastrophic market downturn, enabling the company to shed unsustainable costs and save the business while ensuring a significant return for its creditors.