Sports Clothing Distributor Sales £7m Struggling Due To Brexit

The Challenge

A specialist sport clothing supplier with distribution agreements for leading international manufacturers faced a severe financial crisis. The company’s troubles began after the UK left the European Union. Selling outside the UK became difficult due to new paperwork, customs, and duty charges, which caused the company to lose nearly all of its non-UK business. This was compounded by a shift in purchasing patterns, as the company had to buy from Asia with longer lead times and reduced terms, impacting cash flow. A major problem arose when the sales and purchasing manager over-ordered stock, resulting in a staggering £5.2 million in stock and the company taking out loans to fund the purchase. The business, which thrived during Covid, saw sales return to pre-pandemic levels and was struggling to make loan repayments. The final blow was a £105,000 bad debt from a customer entering administration, which, along with an unaffordable HMRC time-to-pay arrangement, put the company on the brink of collapse.

The Solution

The managing director, recognizing the problem was beyond their accountants’ expertise, contacted RMT KSA Group. After a thorough analysis of the company’s accounts and a rapid forecasting process, RMT KSA determined that a Company Voluntary Arrangement (CVA) was the best option. Liquidation would have severely reduced asset values and led to a loss of trade and jobs, while a pre-pack administration was unfeasible due to the inability to assign the distribution contracts. The CVA provided a framework to restructure the business, reduce its warehousing space by using the CVA to terminate lease obligations, and make two employees redundant at no cost to the company. The company also proposed to pay creditors a total of £1.05m+ over five years, which included a repayment of £14,000 from the directors’ loan accounts. RMT KSA led negotiations with the factoring provider, securing the continuation of the invoice finance facility and ensuring the funder’s support for the rescue plan. This careful and well-thought-out plan aimed to provide a better outcome for all creditors.

The Results

The CVA was successfully approved by creditors in August 2023. The outcome was a far better result than liquidation, with HMRC set to receive a full 100p in the £1 over the next three years, while other unsecured creditors will receive 42p in the £1. The CVA allowed the company to make necessary redundancies, reducing staff to a profitable core and saving **9 jobs**. The business, though much smaller now, is running profitably and has been able to sharply reduce its warehousing space, saving significant costs. The case demonstrates that with a determined management team and expert turnaround advice, a company can navigate complex financial challenges caused by a combination of global events, poor internal decisions, and bad debts. The CVA provided a strong chance of approval, maximized returns for creditors, and allowed the family business to continue under the board’s control.