Haulage Services Company Struggling With Bad Debtors and Disputes

The Challenge

A heavy haulage company with a turnover of approximately £537,000 was in a state of financial distress, which was brought to light by an Independent Business Review (IBR) requested by its invoice finance provider. The IBR identified that the company failed two of the insolvency tests, indicating it could not pay its debts. The core problems were poor financial reporting, disputed debtors, and insufficient profit margins due to poor charge-out rates. These issues were compounded by increasing creditor pressure and legal threats. The company also had high overheads, including a leased yard and office, and was struggling to pay for assets like its trucks. Total unsecured debt was about £250,000, with the director facing personal guarantees for loans and the lease. A major creditor had even served a winding up petition in May 2015.

The Solution

RMT KSA was appointed in April 2015 to assist with a Company Voluntary Arrangement (CVA). The company had already begun taking proactive steps to cut costs, including an organic reduction in payroll, with the director even taking on a driving role to save on expenses. The company also implemented fuel-saving measures by switching to automatic transmission trucks and decided to vacate its leased premises to reduce rental costs, an action that a CVA could facilitate. A CVA proposal was put forward to creditors, while RMT KSA actively negotiated with the creditor who had issued the winding up petition, successfully obtaining two separate adjournments. In addition, the company established a more efficient system for financial reporting and adopted a structured process for setting charge-out rates to ensure profitability on individual jobs. The directors and connected creditors also agreed to waive their claims to loans made to the company, of around £35,000.

The Results

Despite the comprehensive restructuring efforts and the initial success in delaying the winding up petition, the CVA process was ultimately not completed. The director’s prolonged ill health led to a difficult decision to cease trading to prevent creditors’ positions from worsening. The company was ultimately placed into a Creditors Voluntary Liquidation (CVL). While the CVA was not fully implemented, the process provided a crucial period of time during which the company’s financial health was assessed, and significant cost-cutting measures were put in place. The case highlights that even with a strong plan and initial support, unforeseen personal circumstances can ultimately dictate the outcome. It also shows the importance of using professional advice to navigate complex legal processes like a winding up petition, which RMT KSA successfully managed to delay.