London Restaurant is liquidated following attempt at CVA

The Challenge

A restaurant and pastry shop, with a recent turnover of £1.2 million, found itself in significant financial distress. The initial cause was a doubling of renovation costs on its large, leased premises to £700,000, which delayed the opening by four months. This overspend led to a quiet, low-key opening, causing slow trade from the outset. Subsequently, the company faced rising overheads and mounting cash flow difficulties. A dramatic £60,000 drop in sales in the second quarter of 2011, attributed to an extended holiday period, was the final blow. The business was also unable to maintain a “time to pay” arrangement with HMRC, and the directors’ personal guarantees and property were at risk due to significant debts. The company’s financial struggles included secured creditors owed a total of £384,500 from various bank and loan facilities, as well as unsecured creditors with a total debt of £318,771, of which HMRC’s share was a substantial £216,186 (approximately 68%).

The Solution

In July 2011, the company engaged KSA to explore a Company Voluntary Arrangement (CVA) as a potential solution. The proposed CVA included a dividend of 49 pence for every £1 to be paid to unsecured creditors. Critically, HMRC, the largest unsecured creditor, approved the CVA in December 2011. A creditors’ meeting was held, and the CVA proposal received sufficient votes for approval. However, during the meeting, concerns were raised about the company’s long-term viability. As a result, the meeting was adjourned for 14 days to allow the directors to reconsider their position and the company’s future.

The Results

The outcome of this case was an unfortunate but ultimately decisive rejection of the CVA. At the adjourned meeting on January 3, 2012, the chairman informed the creditors that the directors had concluded the business was no longer viable. Consequently, the CVA was rejected, and KSA Group was appointed as liquidators on February 8, 2012. While the company’s story ended in liquidation, there was a positive personal outcome for one of the co-owners. The head chef, who had been working grueling 16-hour days for a low wage, almost immediately secured a new, high-paying job advising high-end hotels. This demonstrates that acting decisively and facing the truth, even if it means closing a business, can lead to positive personal and professional opportunities.