Specialist Film Maker Hit By Recession

The Challenge

A film-producing company in London, with a turnover of approximately £1.4 million in 2008, faced severe financial distress due to the 2008-2009 recession. The company experienced a very sharp slowdown in sales from its TV clients, which was its core business. A diversification into corporate films, intended to offset the loss of TV work, instead created unrecoverable costs, particularly from a sales manager who failed to deliver on promised sales. The situation was made critical when a major contract was abruptly withdrawn while it was only half-complete. With unsecured debt of £202,000, 52% of which was owed to HMRC, and the directors personally guaranteeing a £45,000 bank overdraft, the company’s financial position was no longer viable.

The Solution

In April 2009, the directors contacted RMT KSA to discuss a potential rescue. Recognizing the company’s distress, KSA was initially appointed to assist with a Company Voluntary Arrangement (CVA). As part of a cost and overhead reduction strategy, the directors had already taken sharp measures, including making six redundancies and reducing their own salaries to a very modest level. The directors had also resorted to personal measures, such as eBay trading and re-mortgaging property, to survive. KSA was prepared to use the CVA to formally restructure the company’s debts and allow it to continue trading. However, the subsequent withdrawal of a major contract while the CVA process was underway changed the entire situation.

The Results

Due to the collapse of the major contract, the directors realized the company was no longer viable and a CVA was not a realistic option. They chose to proceed with a Creditors Voluntary Liquidation (CVL) instead. KSA was engaged to conduct the liquidation in September 2009. While the company could not be saved, the CVL provided a structured and orderly way for the business to be closed. It allowed the directors to fulfill their legal obligations and wind up the company responsibly, demonstrating that even when a rescue is not possible, a formal insolvency process can provide a proper and transparent conclusion to a business’s life.