£3m sales - Defeating a Winding up Petition
This company was a well established business trading for 30 years in this sector. It had a poor year in 2003 followed by an even worse event in 2004; the business lost its biggest customer and incurred a bad debt of £286,000 into the bargain.
Everywhere the MD turned he was told bin the company walk away and start again etc. Mr D. was appalled that 30 years of trading could end up with that result and did not want to let his creditors, the bank or his people down.
Ironically, we were introduced to the company by an insolvency practitioner who thought he was right to carry on. The company was basically well run and had excellent financial reporting (for once).
We believed that an honest approach to creditors would be well received as he was trying to obey the mantra of the law maximise the interests of creditors.
A CVA was proposed but before the creditors received their copy a single creditor (who was also a competitor) took the opportunity to try and knock the company over with a winding up petition.
This was filed in the Sheriffs Court in Edinburgh and notified to KSA on the same day. We immediately took action and appointed a lawyer to represent the company and seek to have the petition struck out.
The sheriff agreed and said it is not equitable to allow a single creditor to make the decision on the companys future, when the law allows for the body of creditors to decide under the company voluntary arrangement process.
The petition was therefore rescinded and the CVA was approved by creditors 2 weeks later. This was probably a first in Scotland and was driven by expert advice from KSA we know our case law!
We assisted the MD to restructure the company and introduced new financial products to assist in its recovery. Royal Bank of Scotland was very supportive of the rescue and the company is repaying its SFLGS loan on time whilst the overdraft has been repaid.
So, the moral of the case study is that a CVA (if there is a reasonable prospect of it being approved) can defeat a winding up petition. Choose your advisors carefully make sure they know how to use the law to protect your company whilst its being restructured.
2007 Update: Now nearly 3 years later the company has nearly doubled in size, a stake was ought by a multinational company and the CVA was paid off by them 3 years early. RBS has had all of its debt repaid and the company is now operating from two sites as its growth is so rapid.
What price the people who told Mr D bin it?
Mr D is happy to speak to any KSA contact seeking to use a CVA especially in Scotland where they are still rarer than hen's teeth. Call us now if you wish to speak to him - 0800 9700539.