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Monday, 15 October 2012

CVA Case Study for an IT Services Company

IT services to the Education sector based in the North West.
The directors of the company contacted KSA Group as they were having cash flow problems due to 3 particular factors.
1. Business model used to focus on low margin hardware sales
2. Bank reduced overdraft and paid down the company's credit cards thereby reducing the available working capital and pushing the company past the new overdraft limit.
3. Due to the academic year the company experiences seasonal fluctuations.
The company had recognised the problem and had tried to restructure by making 4 redundancies saving c. £120k pa, 4 directors of the business had left and the business tried to refocus its efforts on technical service and maintenance to increase cashflow.  However, cashflow problems continued as a result of the loss making in the past , SO they thought that a CVA may be needed to provide some relief of the cashflow pressure and buy the business some more time. After looking at all the options KSA Group agreed.
Following our instruction from the directors, HMRC tried to levy distraint on the goods of the company but were persuaded by KSA not to do this pending the outcome of the CVA negotiations.  This was the same strategy that KSA used with all the creditors and we kept them informed of all the developments and work that we were doing to try and restructure the company.
To keep cash flowing we need to persuade the secured creditors,  such as the factor and the bank, to support the company.  The factor undertook to maintain the facility throughout the CVA process and the bank agreed to provide a credit card facility and convert the existing overdraft into a term loan.
At the creditors meeting, held in August, the HMRC and trade creditors voted 100% in favour of the CVA and accepted a dividend of 54p in the £1

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