Recruitment Business Suffers 75% Drop In Sales

The Challenge

A recruitment company with a turnover of approximately £1.1 million faced a catastrophic financial collapse. Over an eight-month period, the company’s sales plummeted by an alarming 75%, a direct result of an economic downturn. To combat this, the directors had already made 20 redundancies, reducing the staff from 25 to just four employees. Despite this drastic measure, the company’s leased city center offices had become an unsustainable financial burden, costing around £5,500 per month. The company had also entered into a “Time To Pay” (TTP) arrangement for its tax liabilities, but its severely constrained cash flow made it impossible to meet the payments. With total unsecured debt of £175,000, of which **80% was owed to HMRC**, the business was on the brink of failure, and the directors were at personal risk due to personal guarantees on the bank’s £10,000 overdraft facility.

The Solution

In June 2009, the directors contacted KSA, which was appointed to assist with a Company Voluntary Arrangement (CVA). The CVA was the core of the restructuring plan. A crucial first step was to address the unsustainable property costs. Shortly after KSA’s appointment, the company relocated to a more affordable office, saving approximately **£60,000 per year**. The CVA proposal, lodged with the court, initially offered a repayment of 34 pence for every £1 to unsecured creditors over five years. However, HMRC, as the largest creditor, requested modifications to the proposal. KSA worked with the company to agree on a revised offer that was acceptable to all parties.

The Results

The negotiations were successful, leading to a revised CVA proposal that increased the repayment to 50 pence in the £1. This revised CVA was approved at the creditors’ meeting in January 2010. The successful implementation of the CVA enabled the company to avoid liquidation and continue trading. The strategic decision to relocate offices proved vital, providing the company with the financial breathing room it desperately needed. Most importantly, the CVA saved the remaining four jobs and provided a structured path for the company to manage its significant debt. This case demonstrates how a CVA, combined with decisive cost-cutting measures, can be a viable solution for a company facing severe financial distress due to a market downturn.