An employee of the company contacted Keith Steven of KSA to discuss the company’s present financial situation. A meeting was then requested and held at KSA’s London office. The company operates within Signage and brand image sector.
KSA were appointed to assist the company with a Company Voluntary Arrangement (CVA) in June 2010. Turnover for the year to November 2009, was c£560K.
The company was encountering financial difficulties due to:
- Reduced factoring facility from 75% to under 50%;
- The salary and drawings level taken by the MD
- A very sharp drop in sales from over the past 4 years, largely due to the recession.
- This has resulted in the build up of tax arrears and the HMRC (Crown) agents were pursuing these liabilities
- The company leases 3 conjoined units from the same landlord on 3 year renewable basis
- The company employs 12 staff including the director.
- KSA assisted the director with 2 redundancies during the production of the CVA.
- The company had an ongoing tribunal claim; it is often the case that tribunal award can be bound into a CVA
Bank & Financial facilities
- The invoice finance provider holds a fixed and floating charge in respect of facilities provided and is therefore classed as a secured creditor and as such would continue to be paid outside the CVA mechanism
- The bank holds a fixed and floating charge and is therefore classed as a secured creditor and as such would continue to be paid outside the CVA mechanism.
- The bank provides an overdraft and two loans.
- The company has one finance facility in respect of a company vehicle.
- The director had provided Personal Guarantees (PGs) to the bank in respect of borrowings.
- The director had accrued an Overdrawn Directors Loan account of c£60K. It is a usual condition of the CVA that director loans of this nature are repaid to the company within the first 6 months of the CVA and that those monies are in turn made available to the supervisor of the CVA as addition contributions for the benefit of the creditors.
Unsecured Creditor debt:
- 315K of which HMRC was 78%
Cost & overhead reduction
- The company made 2 redundancies to reduce payroll costs correlating directly with the reduced level of work
- Overheads have been cut, so the director was comfortable that profitability could be achieved in a relatively short time frame
The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court. The CVA proposed 46p in £1 repayment to unsecured creditors over 5 years. HMRC provided their response accepting the CVA.
The CVA was accepted by the body of creditors at the creditors meeting held in January 2011. The company is now in the 5th year of the CVA and has just completed its forth annual distribution to creditors.
Categories: CVA, What is a CVA or Company voluntary arrangement?