South East Internet Retailing Company Rescued

The Challenge

A company in the South East of England, with a turnover of approximately £1.6 million, faced financial difficulties despite a year-on-year increase in sales. The core problem was a significant drop in its gross margin, which fell by £93,000 in the year to March 2013. This was primarily caused by a market downturn following unseasonal weather in late 2011 and its ongoing impact. The company was burdened with a total unsecured debt of £239,000, with HMRC owed a substantial 55% of that. A further complication was a disputed claim of £26,500 from the German Tax Authority. This authority had requested that HMRC recover the debt, putting the company under pressure from both the UK and German tax authorities. The company’s bank, which was a secured creditor, had a £21,000 overdraft on £30,000 facility, indicating a severe cash flow problem.

The Solution

In April 2013, the director contacted KSA, who was appointed to assist with a Company Voluntary Arrangement (CVA). The CVA was designed to be a comprehensive solution that would address the company’s debts and operational issues. The company lodged an official dispute with the German Tax Authority, which legally halted their recovery action. The CVA was then used to bind the disputed debt into the arrangement. The company also used the CVA to facilitate a move to less expensive offices, which was a crucial step in reducing its overheads and improving its financial position. The CVA included rent arrears, as well as future rent and other contingent balances, providing a complete solution to the company’s debt issues. The CVA proposal offered a dividend of 47p in the £1 to unsecured creditors.

The Results

The CVA was successfully approved at the creditors’ meeting on October 10, 2013. HMRC, holding 55% of the unsecured debt, approved the CVA with standard modifications, ensuring its passage. The CVA provided the company with a legal and structured framework to manage its debt and continue trading. The restructuring enabled the company to vacate its premises and move to a more affordable location, saving significant overhead costs. This outcome was a great success, as it saved 5 jobs and provided a better return to creditors than a liquidation would have. The CVA proved to be a powerful tool for a business with a fundamentally sound model to overcome a market downturn and a complex financial situation, including a disputed international tax claim.