Midlands Based Design Company Lost Main Customer

The Challenge

A company specializing in digital design and manufacturing solutions, with a 2008 turnover of £4.8 million, began facing severe financial difficulties. The problems were triggered by a downturn in its primary market and a reduction in invoice discounting from its largest customer, who was also experiencing cash flow issues. The company found itself over-geared and undercapitalized, with significant debts. These included an overdraft of approximately £400,000 and £1.9 million in loans secured against its owned property. The directors had also provided personal guarantees, putting them at personal risk. With total unsecured debt of £1 million, the company’s directors proactively recognized the impending severe cash flow pressures and decided a radical restructuring strategy was necessary to avoid collapse.

The Solution

After two meetings in late 2008, the company appointed KSA to assist with its restructuring. The solution centered on a Company Voluntary Arrangement (CVA). This process involved not only KSA but also required liaison with the company’s high-profile clients and the bank’s insolvency partners due to the scale of the debt. As part of the restructuring, KSA helped the company make four redundancies, which enabled 21 jobs to be saved. The CVA proposed a dividend of 46 pence for every £1 to be paid to the unsecured creditors. The company’s proactive approach and collaborative effort with all stakeholders were key to getting the plan approved.

The Results

The CVA was a resounding success, with an overwhelming 99.7% of creditors approving the proposal at a meeting in April 2009. This exceptionally high approval rate demonstrated broad support for the plan. The CVA enabled the company to avoid liquidation and continue its operations. Just under two years into the CVA, in January 2011, the company was financially stable enough to offer its creditors an early exit from the arrangement. The offer was accepted, and the creditors ultimately received a 30p in the £1 dividend. This positive outcome shows the effectiveness of a CVA in turning around a struggling business, stabilizing its finances, and ultimately leading to a successful resolution for both the company and its creditors.