Sports Retail and Service Company With Falling Turnover

The Challenge

A company in the specialized leisure sports sector, with a 2013 turnover of £290,000, began facing significant financial difficulties in late 2014. The core problems were undercapitalization, poor accounting and administration, and a falling turnover. The director had started to update the company’s administrative processes but still needed assistance with mounting cash flow pressures. The company’s situation was further complicated by several county court judgments issued by disgruntled unsecured creditors, who were unwilling to cease legal action. This created significant pressure on the company’s fragile cash flow and ultimately prevented it from moving forward. The company’s total unsecured debt was £77,000, with HMRC owed 37.7% of this amount. Additionally, the company was believed to have two outstanding loans of approximately £11,000, with the director facing potential personal liability for them.

The Solution

The director contacted KSA, who was appointed in December 2014 to assist with a Company Voluntary Arrangement (CVA). A CVA would have provided a formal framework to manage the unsecured debt, halt further legal action from creditors, and allow the business to continue trading. The company also had a single employee besides the director. A CVA would have been a viable way to save this job while the director continued their efforts to improve the company’s administration and accounting. The plan would have required the company to provide necessary information and pay fees for the completion of the CVA.

The Results

The CVA process was ultimately unsuccessful. RMT KSA had to resign from assisting the company due to the director’s inability to provide the necessary information within the required timeframes. There were also concerns over the company’s long-term viability. The CVA was never completed, and the company was ultimately unable to resolve its financial issues. This case highlights the importance of providing full cooperation and transparent information during a restructuring process. A CVA relies on a solid business plan and accurate financial information; without it, even a viable rescue plan cannot be implemented.