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Kent Family Company CVA Case Study

15 November 2013

A story of nepotism killing the company

Around December 2003 Mr S approached us through this website. His company had grown form a one man band to sales of £2.5m at its peak, unfortunately the momentum had been spoiled when he did something sensible. He employed professional directors to take the business to the next level. He employed a new sales director and several new sales people to grow the geographic coverage and also took on an operations director / MD designate.

Ok, so far so good, except the sales started to decline when he stopped driving them and costs rose sharply. His business plan was dependent upon good people and he did not recruit well.

Realising that the new director and 95% of the sales people were not delivering/useless, he culled them and decided to go back to basics. This included stopping plans for super new offices/warehouse and sold off the cars and so forth.

However then he made a serious mistake. He promoted his daughter, son and wife to senior positions to fill the gaps. This was really the start of the problems. Some 6 months later the company owed creditors over £1m and the Crown over £100,000 and then sales fell again.

We helped build a CVA to deal with this and then did a detailed business review/joined the board as a non executive director. The review showed that the daughter was not suited to this type of work, the son was not focused and the MD was a doting dad. We suggested replacing them with new people and outsourcing the accountings function (done by his wife). This would have allowed the business to be properly structured. After all, this was still a business selling £1.7m of stair lifts a year, not a tiny company and one that desperately needed good management.

One of the hard parts of our role is to tell the directors what they don't want to hear. Our suggestions were met with a stern rebuff. Even though Mr S. knew we were right he didn't want to sack his children and wife. So we resigned and left the company.

Less than a year after the CVA was approved by creditors, the company failed. The MD had personal guarantees to the bank (and the bank had supported the CVA) when the company was liquidated, they called in his debts. These were secured on his matrimonial property and that of the daughter. Both the parents and the daughter lost their homes. Mr S was made bankrupt for other debts and the last we heard he was unemployed.

The moral here is don't let nepotism get in the way of good business and if you hire us to restructure your company, don't expect us to shrink away from telling you the hard stuff needed to make it work.


Category: Turnaround

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