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Monday, 24 November 2008

New CVA Case Study 27

New CVA case study published today, this is interesting for a number of reasons including, Hive Down of Assets, CVA, Winding up petition, HMRC and a very supportive bank for the rescue we led.

CVA Case Study 27

Well Managed Hardware and Software distributor £4m sales South West and London based.


Solving problems with bank funding are becoming quite common for CompanyRescue advisors and turnaround experts

At the time of writing (November 2008) we all know the big banks are under huge pressure to lend, but they also need to repair balance sheets and avoid impairment charges from future customer failure. So they are tightening up on invoice discounting and factoring rules.

This well run company was suffering from poor sales in early 2008, it sacked the sales director and recruited a new sales person, she was able to drive sales up and fill the order book, as this company has some fairly unique products supplying to (irony here) banks and stock markets! As some of the larger institutions initiated cost cutting drives they began to see sales rise.

Its invoice discounters / bank did not want to fund some of these customers thorough invoice discounting and reduced the facilities. This impacted cashflow and the directors could not meet PAYE and VAT payments. Initially they asked for a Time to Pay Programme (see our guide by clicking link.

HMRC threatened a winding up petition as the debt was rising fast, we then suggested that TTP deal was not going to assist with cost cutting, job losses and the fundamental restructuring required. So we began the CVA process and helped the board reorganise the company.

HM Revenue & Customs agreed not to issue a Winding Up Petition (WUP) but wait for the CVA plan. That did not stop a very aggressive US supplier issuing a WUP for £170,000. The advertisement of the petition would normally lead to the bank freezing the bank accounts but we knew that there was a good prospect of the CVA being approved by creditors.

KSA and the board informed the bank of the CVA plan and the WUP, yet the regional director in the South West agreed to KEEP THE BANK ACCOUNT OPEN!


This was of course, brilliant news and showed the bank truly was supportive. By working hard and arranging a quality CVA proposal the creditors approved by 80% (you need 75% of value of voters to be in favour).

The CVA saw the company's trading and assets Hived Down to 3 separate trading companies with 100% ownership by the parent company. This enabled sales to be channeled through 3 different vehicles and stopped cross security issues. By accepting the CVA the creditors also accepted the CVA Hive Down of the assets.

We prepared 4 sets of forecasts for each company and these were published to the creditors to show the new structure was viable and profitable. What was the CVA DEAL? Payment of 100p in £ of debt over 3.5 years. This is a great outcome for creditors if achieved of course.

As to the petitioning creditor, well they TOO will receive 100p though they seemed to prefer knocking the company over and getting ZERO.

Never did quite understand that bizarre logic, however after the CVA was approved the WUP hearing was held. The FD of the creditor attended the hearing perhaps to see the sword fall on the company's neck? What a shame the judge dismissed the petition summarily.

The equity of the CVA process shone brightly thorough this case. The majority wanted their debt repaid, the bank wanted to support a CVA restructure, but one strange creditor did not. Equitable outcome for all?


Want to know how to Hive Down assets for a powerful restructure of the company, talk to Keith Steven on 07974 086779 now.

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Many thanks for your comments. If you have a private business problem and you want advice give us a call on 0800 9700 539 or email me at keiths@companyrescue.co.uk. If you are a professional advisor with a troubled client, please suggest they visit www.companyrescue.co.uk or contact me as above.

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