Two Connected Companies Burdened By Historic Debt

The Challenge

Two nationwide companies, a carpet and upholstery cleaning franchise (Company A) and a removals business (Company B), both faced a catastrophic financial collapse. Company A, with a turnover of £1.84 million, was struggling with vendor loans from franchise acquisitions, a downturn due to the recession, and a lack of capital. A significant blow was the loss of a key contract, which resulted in a loss of £320,000 in turnover. Company B, with £483,000 in sales, was in a precarious position because it was highly dependent on Company A, its main customer, which owed it a substantial £264,000. Both companies were burdened with historic HMRC arrears that were past a manageable level. The total unsecured debt was overwhelming: £1.055 million for Company A (with 59% owed to HMRC) and £174,000 for Company B (with 100% owed to HMRC). The situation for both was made critical when a bailiff was instructed to attend Company A’s premises to collect £380,000 from a major creditor.

The Solution

The directors of both companies, who were also friends and family, contacted RMT KSA to assist with a rescue plan. RMT KSA was appointed to assist with a Company Voluntary Arrangement (CVA) for both companies. The CVA process was designed to address the historic debts, restructure the businesses, and give them a chance to trade out of their difficulties. KSA’s plan included negotiations with creditors to hold off on legal action and allow the CVA proposals to be completed. The CVA for Company A was particularly important as its success was vital for Company B’s survival, given the significant debt Company A owed it. As part of the CVA, KSA’s team was prepared to use the CVA as a tool to streamline costs and address the financial pressures from creditors.

The Results

Despite our efforts to implement a CVA, a bailiff, using a deceptive tactic, gained entry to Company A’s premises to collect on a £380,000 debt. Despite negotiations, the bailiff insisted on either full payment or removing assets. Deprived of the assets necessary to trade, Company A was forced to cease trading and was placed into liquidation. As a result, Company B, having lost its largest customer and with a significant debtor book turning to bad debt, also had to be placed into liquidation. While the CVA process was very close to completion, this case demonstrates that a single, aggressive creditor with a court order can derail a rescue plan. The liquidation was an unfortunate but necessary outcome when a company is deprived of its assets, proving that a CVA, while a powerful tool, may not be able to overcome every obstacle.