The company’s invoice finance facility provider, asked KSA Group to attend the company’s premises, to conduct an Independent Business Review (IBR). The IBR was conducted in February 2015 at the company’s premises by KSA director and Insolvency Practitioner Eric Walls as well as KSA's Craig Harmon
The company operates within the transport sector providing heavy haulage services.
The IBR identified that the company failed 2 of the insolvency tests under section 123 of the insolvency act 1986 and a Company Voluntary Arrangement (CVA) was recommended.
KSA were appointed to assist the company with a (CVA) in April 2015. Turnover for the year to September 2014, was c£537K.
The company was encountering financial difficulties due to:
- Disputed debtors and debtor credit limit issues, according to a recent invoice finance facility statement.
- The company’s charge out rates, were not set at a level which would maximise profit without impacting sales volume.
- The company’s financial reporting was poor and needed improving
- The board of directors would be strengthened by the addition of an experienced non-executive director.
- Increasing creditor pressure and threats of legal action.
- The company operated from a leased yard with a portakabin as an office.
- The director provided notice to the Landlord to vacate the premises in order to reduce costs. A CVA may be used to vacate unnecessary or costly premises
- The company employs 4 staff including the director
- 1 member of staff was made redundant.
Bank & Financial facilities:
- The bank was unsecured and provided no facilities other than a cleared funds account
- The company had an invoice finance facility providing 80% funding which was secured via an all assets debenture. The invoice finance provider was therefore a secured creditor and would stand outside the CVA process.
- The company also had unsecured borrowings of c£40k
- The company had several finance agreements for assets which it was struggling to pay. These assets were taken back by the finance company and the outstanding residual balances were to be included in the CVA.
- The director had provided Personal Guarantees (P.G’s) to the Landlord and the unsecured lending facility
- The director and close family had made c£35k available to the company in the form of loans: these a know as associated or connected creditors, creditors of this nature do not usually receive a dividend in a CVA and are often expected to waive their claim to such monies.
Unsecured Creditor debt:
- c£250K of which HMRC was 13%
- Cost & overhead reduction
- Prior to KSA’s appointment the payroll had been reduced ‘organically’ i.e. as members of staff had resigned they were not replaced.
- To save on further payroll costs, the director took an active roll by returning driving for the company.
- The company had moved to automatic transmission trucks which reduced fuel consumption by in excess of 10%
- Rental costs would be reduced due to vacating the current premises.
- Cancellation of costly finance agreements
Other issues which were addressed. In conjunction with the company’s external accountant, maintenance of the company’s financial reporting systems would become the responsibility of one member of staff, to ensure efficiency and accuracy of financial information moving forward.
A fully structure process for the company’s charge out rates had been adopted to ensure profitability on individual jobs.
Due to the issues not being addressed soon enough one of the creditors served a Winding Up Petition on the company in May 2015.
KSA actively liaised and negotiated with this creditors solicitor and it was agreed that at the hearing the Winding Up Petition would be adjourned; after which, due to further delays in the process, a further adjournment was requested and obtained.
Unfortunately due to the director’s prolonged ill health, the director took the decision to close the company and cease trading in order that no creditors position was made worse.
At this stage KSA has been approached by the company and secured creditor with respect to appointing KSA to liquidate the company (Creditors Voluntary Liquidation /CVL). However, KSA can not undertake this appointment until the present winding up petition is withdrawn.
Categories: CVA, What is a CVA or Company voluntary arrangement?