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Business Case Study No 1:

Client / Background

 

MD of the company for last 5 years: experienced Housing and Property Developer, well educated, excellent understanding of his business, knew the causes of the difficulties but could not see a forward strategy and wanted to steer clear of an Insolvency process at all costs given the impact that would have on the standing and reputation of the business.

Key Issues

 

The core activity of the company was that of builders and contractors, principally undertaking new builds, refurbishments and maintenance.

 

The key distress symptom for this business related purely to a working capital shortage and a poor trading year ending December 2008 and where a loss in the region of £50k has been made. This was due to a combination of factors:-

 

The company bankers imposed a £10k per month reduction to the working capital overdraft facilities.

 

It has been difficult for the Directors to establish exactly why this has occurred and despite many protestations to the Bank they continued to press reductions, stating only that the company no longer meets their required lending criteria! This has had a massive impact on the cash flow given that most of the work undertaken by the company was on a contract and tranche payment basis.

 

Simple working capital calculations suggested the need for facilities around £150k to fund ongoing contract work and with this reduction the company has found it difficult to make some payments as they have fallen due.

 

Consequentially, the company fell behind with HM Revenue & Customs for PAYE, CIS, Corporation Tax and VAT for a total amount of £159k.

 

Matters have been further exacerbated with the loss in the financial year ending December 2008. These resultant losses were sustained on contract work throughout 2008 as estimates and fixed price contracts had not been undertaken in a timely and cost efficient basis.

 

This was down to poor estimation and contract pricing on work undertaken. However the legacy of such mistakes has seen the company report its first loss since inception.

Corrective Actions / Recommendations

 

 

Our analysis suggests the following areas needed to be addressed:-

• The insolvent position

• Working Capital facilities – a negotiation with the Company Bankers was required to ensure funding is maintained at acceptable levels or seek new funding elsewhere.

• An informal voluntary arrangement will need to be negotiated with HM Revenue and Customs for the current PAYE/CIS, Corporation Tax and VAT, failing that

• Consideration be given to a Company Voluntary Arrangement (CVA) to mitigate such liabilities to HM Revenue and Customs and prevent potential legal action

• Develop and implement business and market planning activities to maximise competitive advantages, re-defining and stating unique selling points.

 

Business Rescue recommended that the Director considered an informal approach and negotiation with H M Revenue and Customs to move current debt with them onto a longer term repayment basis.

 

Business Rescue recommended that in the absence of a negotiated settlement with H M Revenue and Customs that the company considers a Company Voluntary Arrangement (CVA) in order to resolve the business indebtedness.

 

Business Rescue recommended that a negotiation be entered into with the Company bankers to secure funding requirements going forward; alternatively other funding should be sourced without delay.

 

Business Rescue recommends that the business defines a full and comprehensive marketing and PR strategy to help differentiate and seek to add value to the business offering.

For advice on implementing a commercial debt management plan contact:

03309 999 24 7

Conclusions

 

The MD saw fit to go for the informal repayment plan noting that a CVA may be necessary if payments going forward could not be met. Payments going forward and its viability would be resultant on action plans and strategies identified above being implemented, which we assisted with.

 

Result – An informal debt management plan was implemented by Business Rescue through our service provider and ongoing negotiations with the HMRC are prevailing but no further legal action has been brought against the company by them. Further negotiations with the Bankers resulted in a freeze on reductions in facilities so that the company could trade without constant cash flow pressure.

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