The team at The Business Debt Advisor were consulted in late March 2015 to review the financial position of a company based in Derbyshire employing 30+ staff which undertakes large engineering projects for a range of industries.
Funders to the business had recommended the business seek insolvency advice as the company was struggling to adhere to a time to pay plan set up with the Revenue.
The company’s struggles could be traced back to 2013 when it sustained a large bad debt in excess of £100k. Additionally £40k of work in progress had to be written off when a long established customer went into administration. The bad debt crippled cash flow and the loss of a very loyal customer meant the company had to replace, very quickly, a big chunk of its turnover. Rather than make redundancies, the company employed a succession of sales people in an effort to increase to attract new orders. Whilst turnover did eventually return to the pre-bad debt level, losses incurred during 2013/14 of circa £300k had taken their toll and resulted in arrears of VAT and PAYE/NI, plus debts due to suppliers the company could not afford to pay within agreed terms. Redundancies were needed but these too were unaffordable.
The advice from Insolvency professionals recommended by the funders focused on the company going into administration and making most of its staff redundant once the work in progress had been converted into invoiced orders. The Board were very reluctant to follow this route as the company had traded profitably for decades prior to taking the huge hit in 2013. Losses had reduced the balance of the profit and loss account to just under £100k but the company still had a solvent balance sheet. Also the directors had invested in excess of £396,000 into the company and were very reluctant to see this written off.
The directors sought advice from a loyal customer, whose business had been successfully restructured by Bev Budsworth and the team at The Business Debt Advisor. Bev Budsworth states “I received a call from one of the directors and the next day attended a meeting with the Board. Following a detailed review of the company’s financial position, it was evident there was much to protect including significant assets including a freehold property and a very specialist plant necessary for the large type of engineering projects undertaken plus the company had a very experienced team of production engineers. We spent some time reviewing past trading figures and preparing and reviewing future cash flow projections and it was evident that trading on a cash positive basis was positive but cut backs had to be made including the redundancy of at least 5 fulltime staff. These economies would potentially reduce overheads by around £5,000 per week.”
Bev Budsworth adds “The Company factored its debts with a mainstream factor who I believed would have reservations about supporting the company through a restructure involving a CVA. My fears were confirmed in a conversation with the factors. However, the factors were keen to ensure that the company was given support whilst we sought alternative factors, which was a relief. The new factors, Positive Cashflow Finance confirmed following a review of the ledger that they would be happy to take over the factoring notwithstanding the fact that the company was proposing a CVA.
A date has been set at the end of April for the creditors’ and shareholders’ meetings to consider the CVA proposals. The return to creditors in a CVA is projected to be around 76% of their debt. This assumes the company can trade on a cash positive basis going forward. There is also a sum of money to be introduced into the arrangement in lieu of the equity in the freehold factory and offices. These monies are to be introduced either by way of 3rd party investment (director’s personal funds) or by way of a sale and leaseback of the property.
Bev Budsworth adds, “I am very optimistic that the company will secure enough support for the CVA. I am a major fan of the CVA solution but it is not without risks. The company needs to secure 75% of approval from those creditors that vote. Also it is likely that suppliers will turn off the credit tap initially and stock will have to be purchased upfront. Also word of the CVA is likely to spread to customers who could lose faith and place orders elsewhere hence my cautious approach in this blog to name the company. I very much hope that I and my team can be instrumental in saving a 151 year old engineering company which has built up an extremely talented team of engineers. I shall keep you posted on the progress”.
More news to follow …..