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Telemarketing firm makes a good call
The History
On Line Telephone Fundraising Limited traded from offices in Chester and Dunfermline and was set up as a telemarketing agent, recruiting donors on behalf of a number of well-known charities.
After eight years of trading, one of the company directors, Hugh McCaw, acquired the majority shareholding in the business and assumed control of the company.
The Difficulties
The following year, two things happened which had a serious impact on the company. A major charity client cancelled a contract part-way through. It was as a result of the Tsunami that the client made its decision to switch its expenditure to the Tsunami Appeal and it cancelled a very big donor recruitment programme with On Line. The second major issue for On Line was a delay by a major communications company in getting the telephone system installed. This meant a delay of more than three weeks where On Line was paying its staff, yet was unable to generate any income from their Scotland office.
The result of these two factors was that the company lost approximately £300,000 of turnover that year.
Mr McCaw decided the company had to reduce its overheads. The decision was taken to close the telephone unit in Chester, while keeping open the office in Dunfermline. This was a tough decision, but was the best option available to the company since the resources within the Scotland office, including the investments in technology, provided a better fit with the business the company had on its books.
However, the combined effect of the loss of turnover and high overheads led to major cashflow problems and the company accrued significant levels of debt both with its bankers and suppliers.
While the company had managed to receive support from its bankers, this was insufficient to meet the company's immediate liabilities. So, the company approached its professional advisers who referred them to Clarke Bell for specialist insolvency advice.
The outcome
After discussing their situation with Clarke Bell, it was agreed that a Company Voluntary Arrangement (CVA) would be the best course of action for both On Line and its creditors. The CVA was then approved by the members and creditors at a subsequent creditors' meeting as the realistic alternative was that the company would be forced into Liquidation, which would have meant the return to unsecured creditors would have been minimal.
As a result of the CVA, the company was able to continue to trade, while its creditors agreed to accept payments over a period of five years - or less, if the company performs exceptionally well. (As part of its role as Supervisor, Clarke Bell monitors the company's performance every 12 months).
In order for the business to continue, a number of creditors were excluded from the Arrangement as they provided supplies that were essential to the running of the business. These creditors will be paid during the normal trade of the business.
By taking tough actions, On Line was making a monthly saving of more than £30,000 in salaries due to the reduction of staffing at its Chester office. The directors also decided to expand the types of campaign accepted by the company. The effect of these decisions meant that the company's cashflow was in a much stronger position and they were able to maintain quarterly voluntary contributions to the CVA.
The company is able to continue to trade on its own account and in its own name as the directors believe this will provide the best opportunity for the company to realise profits, maximise value from the debts and to ensure a more advantageous return to creditors.
John Bell of Clarke Bell said:
"On Line may have thought that it was the end of the line. However, there are several options available to companies with cashflow problems - many of which provide the directors with a workable business going forward."
Steve Boyd, director of On Line, said:
"Thanks to Clarke Bell's help, the arrangement has been set at a realistic and achievable amount. This means we are able to pay off our debts, while continuing the business in a workable manner."....
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