Liquidation Case Study – Two Connected Companies

Liquidation case study

Nationwide carpet and upholstery cleaning franchise (company A) and nationwide removals company (company B), incorporated in December 2004 and April 2009 respectively.

The companies’ directors contacted KSA after reading the website.  Meetings were subsequently held between the directors and KSA representatives. KSA was appointed to assist company A in July 2010 and company B in August 2010.

Turnover for the financial  2009 financial  was:

• Company A: £1.84m up £230K compared with the previous year
• Company B: £483K first 9 months trading.

The companies were encountering financial difficulties due to:

Company A

• Inability to repay the vendor loans for the franchise acquisitions.
• Downturn in trade in the market due to the recession
• Undercapitalised.
• Loss of c20% of turnover, being c£320k in 2009 due to loss of key contract .
• Historic accrued arrears with HMRC and trade creditors increased past manageable levels

Company B

Its relationship with company A, a company owned by the directors of company B. Company A by far was the main customer of company B, and was itself looking to arrange a Company Voluntary Arrangement with its creditors. Company A  struggled to pay company B which has therefore placed company B in financial difficulty outstanding debtor balance of c£264K owed by company A.

Historic accrued arrears with HMRC increased past manageable levels.

Leased Premises

Both companies operated from various premises around the country, which were all in the name of company A.

Employees

• Company A had 53 employees including directors. No redundancies were planned.
• Company B had no employees: these were drawn from company A, company B was invoiced for services rendered.

Bank & Financial facilities:

Company A

• Bank held debenture fixed and floating charge over
• Overdraft c£32K
• 2 loans total c£70K
• Invoice Finance Facility held debenture fixed and floating charge over debtor book and was owed c£140.5K

Company B

• The bank had no exposure:
• No loan or overdraft facilities.
• No security

Director’s Loan Account

• One director was owed c£134K for loans made available to company A

Unsecured Creditor debt:

Company A

• £1.055M of which HMRC was 59%

Company B:

• £174K of which HMRC was 100%

Nominees review took place for both companies on 20th April 2011 therefore CVA process close to completion

April 2011 – bailiff was instructed by a major creditor (not HMRC) to attend the premises of the company to collect c£380K.  It is always advisable to prevent entry to company premises if bailiff action has been threatened by keeping all means of entry locked; which was the case here. However bailiffs have tricks to gain entry, once they have, they can’t be ejected. In this case, the bailiff rang the door bell and when questioned simply said “delivery!” and he was in. He then proceeded to execute his brief which was collect full payment or remove assets to the value of. No amount of negotiation from KSA’s part would dissuade him. Often a bailiff may be persuaded to take ‘walking possession’ which means an inventory of unencumbered goods is taken and they are labelled so no one else may remove them.  However in this case that was not possible.

Unfortunately, deprived of the assets necessary to trade, company A ceased trading and was placed into Liquidation. Company B, having found it’s outstanding debtors book had completely turned to bad debt and it’s major client had gone, was also placed into liquidation.