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UK based cleaning contractor – CVA case study

The director of the Dorset based company contacted Sarah Massey of KSA to discuss the company’s present financial situation. A meeting was then requested and held with KSA regional manager, Hugh Gabriel, at the company’s premises.

The company operates within contract cleaning sector. KSA was appointed to assist the company with a Company Voluntary Arrangement (CVA) in August 2015.

Turnover for the 2016 trading year was c£227K. The company was encountering financial difficulties due to:
– Being undercapitalised
– Loss of major contracts
– Reliance on low margin work supply
– Increasing debts, particularly HMRC.
– The company lease a serviced office in a block

– The company employs 15 staff including the director
– In this case, it was not necessary to use the CVA to make any redundancies 

Bank & Financial facilities
– The bank is unsecured (i.e. it holds no charge or debenture over the company’s assets) and provides the company with no credit facilities, only a cleared funds account
– The company has no finance or rental agreements
– The director had provided no personal guarantees (PGs) to any creditor.
– There was a large overdrawn directors loan account which was proposed to be repaid over the life of the CVA 

Unsecured Creditor debt:
– £100K of which HMRC was 87% 
– Cost & overhead reduction 
– Costs and overheads have been cut and are under control, so the director is comfortable that profitability can be achieved in a relatively short time frame
New activity
– The director has many new marketing ventures to expend the company’s market share of it’s current sector and to gain a share of other cleaning work both in the company’s present catchment and in new areas.

The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court. The CVA proposed 54p in £1 repayment to unsecured creditors over 5 years.

HMRC provided their response rejecting the CVA. The items of concern cited in their response were:
– Poor compliance
– Substantial historic arrears
The creditors meeting was adjourned for 14 days to permit KSA insolvency practitioner, Eric Walls, to respond to the points raised and suggest amendments that may be acceptable; which include an increase of the dividend to 57p in £1.  Following which, the CVA was accepted by the body of creditors at the adjourned creditors meeting and the company is now in a CVA. 

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