Rescue case study – kitchen manufacturing company

This West Country based company was incorporated in October 2000. It manufactures and installs bespoke kitchens, employing 25 people including officers.

One of the Company’s director’s contacted KSA after reading the website. A Meeting was subsequently held in March 2011 between the directors and KSA’s regional manager, Hugh Gabriel. KSA were appointed to assist the company a few days after the meeting.

Turnover for the 2009 financial  year was £960K, however turnover for the 2010 financial year was £1.6m.

The company was encountering financial difficulties due to:

1. Undercapitalisation
2. Delayed orders and a Downturn in trade in the market due to the recession
3. Historic accrued arrears with HMRC and trade creditors increased past manageable levels
4. The severe winter that year.

The board had already identified these issues prior to KSA appointment, therefore had reduced staff costs and overheads. However, they recognised that severe cash flow pressures lay ahead and a longer term radical strategy was necessary.

Leased Premises

The company operated from leased premises, there were no arrears.

Employees

KSA assisted with 10 redundancies which meant that 15 jobs were saved.

Bank & Financial facilities

• Bank held debenture fixed and floating charge
• Overdraft facility £30K on which was owed c£21K
• EFG loan of c£54K
• The directors had also provided personal guarantees

Director’s Loan Account

The directors were owed c£52K for loans made available to the Company

Unsecured Creditor debt

£375K of which HMRC was 55%

This company had over 10 County court judgements (CCJs) against them when KSA were appointed (3 bailiffs had already been instructed to visit the premises). Because this was a showroom, it was impossible to prevent entry by keeping doors locked and so bailiffs simply gained entry. Whilst agreements had already been made with those bailiffs that had visited, KSA assisted with negotiation with any subsequent visits, and in many cases negotiated with the creditors to prevent further action of this nature.

The nominees review took place on 13th July 2011. The CVA was approved by 100% of the creditors at the creditors meeting in August 2011 with a proposed dividend of 44p in £1.

This goes to show that early communication with creditors is key to stopping further legal action. It also allows time for the company to enter a CVA and be given a change to turn the company around.