Recruitment and Personnel Industry Rescue and Liquidation Services

Case Study 1 London Recruitment Company Expansion Plan Fails

The Challenge

A London-based recruitment company with three offices, specializing in accountancy and media placements, faced a severe financial crisis. An ambitious and rapid expansion plan had backfired, with costs quickly outstripping sales, leading to substantial losses. As a provider of temporary staff, the company’s PAYE debts were extremely high, and its attempts to secure a “time to pay” deal with HMRC were in jeopardy. Despite some initial positive feedback, HMRC ultimately changed its approach and issued a winding-up petition, pushing the company to the brink of liquidation. The company’s owner was based in the Southern Hemisphere, and the local managing director was struggling to find a solution on his own.

The Solution

The managing director, after a recommendation from a friend, contacted RMT for urgent assistance. RMT immediately requested that HMRC not advertise the winding-up petition, a request that was granted. This action bought the company crucial time to prepare a Company Voluntary Arrangement (CVA). The CVA proposal was innovative and designed to offer a strong return to creditors, particularly HMRC. The plan included a one-off payment of £150,000 to be paid to the supervisor within three months. Additionally, the company proposed to pay 50% of its future post-tax profits to creditors. This approach allowed the company to rebuild its cash balance over a three-month period by not having to pay PAYE and VAT, providing a vital period of financial relief.

The Results

The CVA was a complete success. The creditors, who were predominantly HMRC, received a good return of over 55p* in the £1 in the first year and were satisfied with the proposal. Despite the director’s concerns about the creditors’ meeting, no one attended, which is a common occurrence. The CVA provided a legal and structured framework for the company’s turnaround, enabling it to avoid liquidation and continue trading. The innovative CVA approach allowed the company to address its overwhelming tax debts, protect its business, and ultimately achieve a successful recovery. The case serves as a powerful example of how a CVA can be used as a flexible and effective tool to rescue a business facing a winding-up petition, especially for companies with high PAYE debts like those in the recruitment sector.

*note that since 2020 HMRC are now preferential and will usually get 100p in the pound in any CVA if other unsecured creditors get a dividend.

Case Study 2 North East Recruitment Company Lost Major Contract

The Challenge

A group of three recruitment companies, with annual sales of £4.5 million, faced a sudden and catastrophic financial crisis. The group lost a major contract with a multinational accounting firm, causing sales to plummet to just £2.5 million overnight. In a misguided attempt to either win the work back or replace it, the board held on to its staff and fixed costs, which accelerated the company’s decline. This resulted in a build-up of unmanageable debt, particularly with HMRC, which was owed approximately £230,000 in unpaid PAYE. The group was in a state of insolvency, with its future at risk and the directors unsure of what restructuring options were available.

The Solution

The directors, realizing the severity of their situation, contacted RMT for immediate assistance. RMT devised a comprehensive strategy to restructure the entire group of companies. The solution involved a combination of liquidation and a Company Voluntary Arrangement (CVA). Two of the companies, which were no longer viable, were put into liquidation. The third, fundamentally viable company was to be rescued using a CVA. This approach allowed the company to deal with its financial problems in a structured way. RMT prevented a winding-up petition from HMRC, which was a crucial step in gaining breathing room. The restructuring plan also included reducing the headcount by 10 full-time staff and over 40 temps, negotiating an exit from two unwanted office properties, and replacing a factoring deal to provide higher initial payments and improve cash flow. KSA carefully modeled the business over a five-year period to demonstrate its long-term viability to creditors.

The Results

The CVA was approved. It allowed the company to deal with its unmanageable debt, save a viable business, and avoid liquidation. The CVA provided a legal framework to reduce the headcount and exit the two unprofitable office properties, saving the company from further losses. By driving the two failed companies into liquidation and rescuing the third with a CVA, the directors were able to make a difficult situation manageable and secure the best possible outcome for all stakeholders. The company emerged as a much smaller but more focused and profitable entity. This case is a strong example of how a CVA can be a powerful and effective tool for a company in the recruitment sector to manage a sudden loss of business, restructure, and secure its future.