Electronic Entertainments Installation Company Discovered It Had Underpaid VAT

The Challenge

An Eastern-based audio-visual equipment company, with a turnover of over £1m, faced a severe financial crisis due to financial mismanagement. The core problem was the discovery of unpaid and undeclared VAT amounting to £150k, which created a critical cash flow shortage. Despite the board’s attempts to cut costs, the company was burdened with a total unsecured debt of £225K, with HMRC as the majority creditor at 76%. The situation was exacerbated by a local authority that had obtained a liability order for outstanding business rates.

The Solution

The directors engaged RMT KSA in May 2011 to implement a longer-term, radical strategy, focusing on a Company Voluntary Arrangement (CVA). This involved negotiating with a local authority to delay enforcement of a liability order by providing a draft CVA, which persuaded them to hold off action until a creditors’ meeting could be held. As part of the CVA, a director and an associated business who were owed £80k from loans made to the company agreed to waive their claims.

The Results

The CVA was a success. It was approved at the creditors’ meeting in September 2011, with a proposed dividend of 49p in the pound. The successful CVA saved all four jobs at the company and provided a structured path for the business to resolve its significant debt issues.