Health Drink Retailer Faced Falling Sales

The Challenge

A well-established company with a turnover of £1.2 million, operating a number of outlets selling health drinks and smoothies, began to face severe financial distress. The business employed 40 people but was struggling due to a downturn in discretionary spending, particularly within the shopping centers where its outlets were located. A significant amount of management time was also being consumed by the development of a global franchise operation, diverting focus from the core business and its immediate cash flow issues. The company had a solvent balance sheet with assets valued at over £1 million, but was unable to pay its debts as they fell due, failing one of the key insolvency tests. The total unsecured debt was considerable, including £208,000 in trade creditors, £89,000 owed to HMRC in overdue PAYE and NIC payments, and an additional £900,000 in other loans.

The Solution

RMT KSA was approached to find a solution to the company’s financial crisis. Their recommendation was to enter into a Company Voluntary Arrangement (CVA). As part of this strategy, the company planned to close five of its less profitable units to streamline operations and reduce overhead. RMT KSA’s Marie Moody took the lead in negotiating with key creditors. She successfully convinced landlords to reduce rents and accept a long-term plan for arrears repayment. She also worked with the council to prevent liability orders for business rates. The most critical part of the solution was persuading a former landlord, who had already served a winding up petition, to hold off on legal action until the CVA proposal could be put to a vote. The CVA proposed an initial monthly repayment of approximately £2,000 to £3,000, with additional payments from 50% of retained net profits over the arrangement’s term. The company also planned to seek refinancing to exit the CVA early.

The Results

The CVA proved to be a successful and decisive move. The former landlord, the petitioner, was convinced to withdraw their winding up petition and ultimately voted in favor of the CVA. The proposal, which offered a minimum dividend of 25 pence in the £1 to creditors with the possibility of more based on future profits, was accepted. This outcome allowed the business to continue trading at a reduced number of outlets. Most importantly, the company’s strategic restructuring and the approval of the CVA led to the preservation of **40 jobs**. This case demonstrates how a CVA can be a powerful tool for a company with a sound business model but temporary cash flow problems, enabling it to restructure, settle debts, and save jobs without resorting to liquidation. The successful negotiation with the petitioner was a key factor in the business’s survival.