Kitchen Manufacturing Company Hit By Recession

The Challenge

A West Country-based company that manufactures and installs bespoke kitchens, with a recent turnover of £1.6 million, faced severe financial difficulties. The company’s problems stemmed from being undercapitalised and a downturn in the market due to the recession and delayed orders. This led to a build-up of historic arrears with HMRC and trade creditors, which grew to unmanageable levels. The severe winter also exacerbated the company’s cash flow problems. By the time RMT KSA was appointed, the company had over 10 County Court Judgments (CCJs) against it, and bailiffs had been instructed to visit the premises, creating an immediate and serious threat. With a total unsecured debt of £375,000, of which 55% was owed to HMRC, and the director’s facing personal guarantees on an overdraft of £21,000 and an EFG loan of £54,000, the situation was critical.

The Solution

The directors of the company proactively contacted KSA in March 2011, recognizing the need for a radical strategy. Prior to KSA’s appointment, they had already begun reducing staff costs and overheads. KSA was appointed to assist with a Company Voluntary Arrangement (CVA). As part of the restructuring, KSA assisted the company in making 10 redundancies, which was a difficult but necessary step to save the business. This enabled 15 jobs to be preserved. KSA also took immediate action to address the threats from bailiffs, negotiating with creditors to prevent further legal action. The CVA proposal, which was reviewed and lodged with the court in July 2011, offered a repayment of 44 pence for every £1 to unsecured creditors.

The Results

The CVA was a complete and overwhelming success, with a remarkable 100% of creditors approving the proposal at the meeting in August 2011. This outcome demonstrated the power of early communication and negotiation with creditors, which was key to stopping further legal action and convincing them to support the CVA. The CVA provided the company with the breathing room it needed to implement its turnaround plan and gave it a chance to succeed. The agreement allowed the company to avoid liquidation, save 15 jobs, and manage its significant debt in a structured manner. The case stands as a testament to the fact that proactive and decisive action, combined with expert advice, can provide a successful path to recovery even when a company is on the brink of collapse.