Heating Engineer Company Hit By Poor Financial Controls

The Challenge

A heating engineering company with a turnover of approximately £454,000 was facing severe financial difficulties. The root causes of the problem were a combination of being undercapitalised and poor accounting practices. A significant factor was a loss-making commercial contract in 2008, which created long-term cash flow pressures. The company’s board identified these issues in January 2010 and had already taken steps to cut costs by reducing labor and overheads. With total unsecured debt of around £200,000, and HMRC accounting for a substantial 90% of that debt, the company was in a very precarious position. The company operated from leased premises and had 11 employees, including the director, all of whom were at risk.

The Solution

In September 2010, the company engaged KSA to assist with a Company Voluntary Arrangement (CVA) as a formal strategy for recovery. The CVA proposal aimed to restructure the business and its finances. The company also implemented several operational changes to improve profitability and efficiency. These included a plan to increase higher-margin commercial work, introduce restrictive covenants to retain qualified staff, and improve the sales operation to ensure all leads were adequately followed up. Regular monthly staff meetings were also planned to ensure the successful implementation of the new strategies. The CVA proposal offered a repayment of 40 pence for every £1 to unsecured creditors over five years.

The Results

The CVA was a complete success. HMRC, which held a majority of the unsecured debt, accepted the proposal. The CVA was then approved by the full body of creditors at the creditors’ meeting. This agreement allowed the company to avoid liquidation and continue its business operations. The CVA provided the company with a structured and legally binding path to manage its debt, giving it the financial stability to implement its new business strategies. All 11 jobs were saved, and the company was able to move forward with a renewed focus on profitability and operational efficiency, thanks to the CVA framework. The successful outcome demonstrates how a CVA can be a powerful tool for a viable business to overcome significant financial hurdles and secure its future.