UK Based Pub & Restaurant Business Bought A Loss Making Business

The Challenge

A company in the leisure sector, which operated a high-end pub and restaurant, faced significant financial difficulties shortly after taking over its lease. The directors had relied on financial information from the previous tenant, which proved to be incorrect, resulting in a lower-than-expected turnover of approximately £270,000 in 2014 and the accumulation of debt. The directors faced personal exposure due to personal guarantees provided to the landlord. The company was also burdened with an unsecured debt of around £20,000, all of which was owed to HMRC, making HMRC the sole unsecured creditor. The directors were also owed a considerable amount in loan accounts, which would complicate any restructuring attempts.

The Solution

The directors contacted KSA, who was appointed in February 2015 to assist with a Company Voluntary Arrangement (CVA). The CVA was designed to provide a legal framework for the business to manage its debt and restructure its operations. The company had already taken proactive steps to improve its financial situation by negotiating a short-term rent reduction and an ongoing barrelage cost reduction. The directors also instigated new financial and stock control protocols and launched a targeted marketing campaign. As part of the CVA, the directors, as connected creditors, agreed to waive their claim to their loan accounts. The CVA proposal was ambitious, offering a full 100 pence in the £1 repayment to unsecured creditors over four years, demonstrating the directors’ confidence in the company’s future viability.

The Results

The CVA was a complete success. HMRC, which held all of the unsecured debt, accepted the proposal. The CVA was then formally accepted by the body of creditors at the creditors’ meeting, allowing the company to enter the CVA. This outcome was a significant achievement, as it saved all **10 jobs** and allowed the business to continue trading. The CVA provided a structured, legal path for the company to repay all of its unsecured creditors in full over a four-year period. By implementing the new financial protocols and marketing strategies, the company was able to move past its initial financial difficulties and secure a stable and profitable future. The case is a strong example of how a CVA can be a viable and powerful tool for a business with a fundamentally sound business model to overcome temporary financial setbacks.