Subsea Fibre Optic Company Facing High Office Costs

The Challenge

A global leader in the installation of subsea fiber optic cables, which was a portfolio company of a venture capital firm, was facing severe financial distress. The company was hugely overmanned and burdened with too many properties, including a head office that cost nearly £1 million per year. The company was advised that it needed protection from aggressive creditors before it could undergo a formal restructuring. The challenge was to find a legal mechanism that would allow the company to shed its unsustainable costs, including a very expensive head office lease, while continuing to operate its global business and ultimately returning to profitability. The company had a large workforce of 1,200 people, and a failure would have been catastrophic for all stakeholders.

The Solution

In September 2004, the company was placed into administration to provide immediate protection from creditors. KSA was brought in to manage the business turnaround during this period, running the company’s global operations, which included a fleet of 15 ships and a staff of 1,200 people. As part of the turnaround, KSA implemented a deep cut in staff and overheads. The core of the rescue plan was to use a Company Voluntary Arrangement (CVA) to restructure the business and its debts. KSA’s Keith Steven led negotiations with the landlords of the expensive head office, and it was agreed that the company would exit the property as part of the CVA proposals. This was a crucial step to remove the £1 million annual cost from the company’s books.

The Results

The CVA was approved, and 12 weeks later, the company successfully exited its head office, resulting in an immediate £1 million annual saving. The landlords initially took legal action, claiming the CVA could not terminate the lease, but they dropped the action when it was pointed out that they had voted for the CVA, which included the lease termination as a condition. The CVA’s approval provided a formal and legally binding framework for the company’s recovery. The company was so successful in its turnaround that it was able to satisfy its CVA in full just 13 months after it was approved. This case demonstrates that a CVA is a powerful tool for terminating unwanted contracts, even leases, and that a combined administration followed by a CVA can be an extremely effective strategy for a complex and multinational business to restructure and return to profitability.