Recruitment Company Suffering From Tight Margins

The Challenge

A recruitment company with a turnover of approximately £820,000 found itself in a difficult financial position. The primary cause of the company’s distress was the intense financial pressure imposed by its main clients, which severely reduced profit margins. This struggle was compounded by a significant historic debt to HMRC and an inability to keep up with current tax liabilities. The company had entered a “Time To Pay” (TTP) arrangement with HMRC but was failing to meet its obligations, indicating a deeper cash flow problem. The director faced personal risk due to a personal guarantee on a large bank overdraft. With unsecured debt of roughly £220,000, all of which was owed to HMRC, the business was on the brink of being forced into liquidation.

The Solution

To address the crisis, the company engaged RMT KSA in February. They advised and assisted the company in proposing a Company Voluntary Arrangement (CVA). As part of this process, the company took decisive steps to restructure its finances. The invoice finance facility was canceled, and all other overheads were reduced and brought under control. The director also agreed to waive his claim to a director’s loan account to ensure the CVA was as beneficial as possible to creditors. The CVA proposed a 40 pence in the £1 repayment to unsecured creditors over a five-year period. In addition, the director began exploring new revenue streams, including supplying to new sectors and providing accredited training, to improve the company’s long-term viability.

The Results

The CVA was a complete success. HMRC, which was the sole unsecured creditor, reviewed and accepted the CVA proposal. The CVA was then approved by the body of creditors at a meeting, allowing the company to formally enter the arrangement. The CVA was instrumental in saving the business from liquidation and, most importantly, all 34 jobs were saved with no redundancies required. The agreement allowed the company to continue trading from its leased office suite, honor its debt to HMRC in a structured way, and pursue new business opportunities. This outcome demonstrates how a CVA can be a powerful tool for a company with a viable business model but unsustainable debt, providing a legal framework for recovery while preserving both the company and its workforce.