North East Recruitment Company Lost Major Contract

The Challenge

A group of three recruitment companies, with annual sales of £4.5 million, faced a sudden and catastrophic financial crisis. The group lost a major contract with a multinational accounting firm, causing sales to plummet to just £2.5 million overnight. In a misguided attempt to either win the work back or replace it, the board held on to its staff and fixed costs, which accelerated the company’s decline. This resulted in a build-up of unmanageable debt, particularly with HMRC, which was owed approximately £230,000 in unpaid PAYE. The group was in a state of insolvency, with its future at risk and the directors unsure of what restructuring options were available.

The Solution

The directors, realizing the severity of their situation, contacted KSA Group for immediate assistance. KSA devised a comprehensive strategy to restructure the entire group of companies. The solution involved a combination of liquidation and a **Company Voluntary Arrangement (CVA)**. Two of the companies, which were no longer viable, were put into liquidation. The third, fundamentally viable company was to be rescued using a CVA. This approach allowed the company to deal with its financial problems in a structured way. KSA prevented a winding-up petition from HMRC, which was a crucial step in gaining breathing room. The restructuring plan also included reducing the headcount by 10 full-time staff and over 40 temps, negotiating an exit from two unwanted office properties, and replacing a factoring deal to provide higher initial payments and improve cash flow. KSA carefully modeled the business over a five-year period to demonstrate its long-term viability to creditors.

The Results

The CVA was approved. It allowed the company to deal with its unmanageable debt, save a viable business, and avoid liquidation. The CVA provided a legal framework to reduce the headcount and exit the two unprofitable office properties, saving the company from further losses. By driving the two failed companies into liquidation and rescuing the third with a CVA, the directors were able to make a difficult situation manageable and secure the best possible outcome for all stakeholders. The company emerged as a much smaller but more focused and profitable entity. This case is a strong example of how a CVA can be a powerful and effective tool for a company in the recruitment sector to manage a sudden loss of business, restructure, and secure its future.