COMPANY VOLUNTARY ARRANGEMENT / ADMINISTRATION
A family run manufacturer of kitchen and bathroom furniture had operated successfully for over ten years maintaining profitability. It supplied both the trade and general public offering a fittings service.
The company survived the immediate aftermath of the financial crash partially due to its accumulated profits, but it began to suffer cashflow difficulties and became reliant upon the senior director for support and by way of working capital.
Behind the scenes, there were personal issues with family members who were also directors of the company. The senior director found it extremely difficult to deal with these burdens and cashflow issues.
The company remained in a serviceable position, but it started to become under pressure from both suppliers and the Crown. The company had started to implement a programme of disposal of certain assets to aid cashflow. However, it was clear that this was a short-term issue and also further cost-cutting regarding redundancies were unaffordable due to the length of service of the staff.
Poppleton & Appleby were introduced to the directors by the company accountants. Following a review of the business and taking into account the personal issues of family members who were also directors, the relevant points were addressed as follows:
- The company was insolvent on a cashflow basis, and it was confirmed to not to be in a position to make further redundancies.
- The continuation of the programme of asset disposal needed careful consideration and valuations before it could continue. Poppleton & Appleby advised the director of the provisions of the Insolvency Act which prohibit transactions at an under value.
- The company had a fairly robust order book.
- It was clear that the company’s trade suppliers wished to continue to support the company having had many years of successful trading.
- The principal director handled all “firefighting” issues which were hampering his ability to take care of the day to date operation of the company.
Poppleton & Appleby initially instigated a full valuation of the company’s assets by a firm of professional valuers in order to properly assess the viability of the business.
Having considered other formal processes to deal with the position, Poppleton & Appleby recommended that the company had identified the issues at a sufficiently early point in time and that it was recommended that the company propose a company voluntary arrangement (CVA):
- Poppleton & Appleby assisted the directors in the preparation of bespoke proposal documentation.
- The company accountants were engaged to prepare detailed cashflow information and support of the proposals.
- The completed proposals were circulated to all creditors, and a creditors’ meeting was convened for their consideration.
- In the meantime, Poppleton & Appleby assisted in creditor queries including those from HMRC.
- The proposals were approved by creditors with standard HMRC modifications.
THE FIRST OUTCOME
- Continuation of the business.
- Redundancies were minimised.
- The company initially maintained the terms of the CVA.
- A further disposal of assets was managed under the auspices of professional valuers.
- A significant dividend was paid to creditors.
After a significant trading period, it was reported that the company had incurred post relevant VAT liability contrary to the CVA. This issue was reported immediately giving Poppleton & Appleby the opportunity to negotiate further with HMRC to resolve this position over a short period. Around the same time, the director had been approached by two independent third parties who wished to invest and become involved in the business. A change in the company structure would require the supervisor’s written approval under the terms of the CVA.
The two individuals were brought in as directors which required the resignation of two family members as referred to. There was also an allocation of the company’s shareholding. Again, this was under the auspices of the company accountants.
Following the re-organisation, the company began to fall into contribution arrears. It was also clear that the “new” board of directors sought different solutions. The CVA fell into breach and was not able to be rectified. This situation was recognised at an early date by the management which enabled them to consider further options to protect the business.
THE SECOND SOLUTION
In conjunction with professional agents, a discreet marketing campaign was undertaken. Poppleton Appleby was again instructed by the directors who wished to appoint administrators. Immediately following their appointment, Poppleton & Appleby undertook a sale of the assets to the “new” management subject to valuation.
- Again, redundancies were minimised.
- The “new” directors were motivated and driven and also provided a new customer base.
- The optimum value of the business was achieved.
- A further significant distribution was able to be made to unsecured creditors.
- The accountant who referred the case initially retained their new clients.