Insolvent business rescued with a pre-pack administration

Our client had serious cashflow problems and was facing a winding up order from its main creditor.

The director wanted to avoid liquidation and continue to trade because he believed that the business was viable. However, he needed our specialist insolvency advice on how to achieve this goal.

Cashflow problems

The company was involved in the healthcare sector, working with the NHS. It employed about 140 staff, with a turnover of over £2 million. The company had secured additional NHS work which had meant that it had opened two new offices to service that new work.

After some time the company was suffering delays in its payments from the NHS. In addition, whilst they had notified the NHS of a price increase, some months belatedly the company was told that the NHS could not pay these increased fees. This, along with the additional costs associated with their new offices, resulted in the company experiencing cashflow problems.

The company was insolvent – i.e. it was not able to pay its bills when they were due. The main liability over £300,000 that was owed to HM Revenue & Customs. The director’s negotiations with HMRC had been exhausted and he was not able to negotiate a revised repayment plan. Whilst no formal proceedings had been taken against the company, HMRC were threatening to present a petition to wind up the company.

The company also owed money in respect of loans and trade creditors.

The director and the company’s Accountants approached Clarke Bell for our insolvency advice.

The options available to an insolvent company

After an analysis of the company’s situation, the main options available were to:

  • not to contest HMRC’s claim which may result in a Winding Up Order and liquidation
  • enter into a Creditors’ Voluntary Arrangement (CVA) with the company’s creditors
  • put the company into Administration.

The director was forecasting an increase in the company’s turnover and net profits. In addition, the NHS had introduced a new online system for making payments which would speed up payments and help to reduce any payment issues. The company had also restructured its internal administration and their Accountants were now dealing with the company’s payroll and management accounts.

The director wanted to avoid liquidation, so the first two options were rejected.

The forecasted increase in profits meant that monthly contributions were potentially affordable for a CVA. However, given that HMRC were threatening to present a petition to wind up the company, they were unlikely to accept a CVA proposal. Since the sum owed to HMRC exceeded 25% of the unsecured claims, a rejection from HMRC meant the CVA could not be approved.

A pre-pack administration

A pre-pack administration was then proposed. This would enable the director to set up a new company and made an offer to purchase the business and assets of the current company.

The business was marketed to see if there were any other interested parties. No better offers were received, so Clarke Bell (as the Administrator) sold the business to a company controlled by the director’s new company.

Completing the Pre-Packaged sale of the business as a going concern enabled us to:

  • realise the goodwill of the business
  • realise ‘going concern’ values of the assets rather than ‘forced sale’ values
  • avoid employee claims against the Administration estate
  • insist that settlement of the director’s loan account must be agreed prior to completing any sale – which enabled us to negotiate a full repayment of that loan.

A successful new business

Avoiding liquidation and keeping the business as a going concern was a great success for the:

  • creditors
  • staff
  • patients
  • director.

Clarke Bell’s senior partner, John Bell, said:

“This case is a great example of how you should consider all the viable options when a company is insolvent.

We were able to find a successful solution which was the best result for all the parties involved.”

Successful business funding found

Thanks to our many years of experience and our network of business specialists, Clarke Bell can provide a wide range of solutions for businesses that are facing financial issues.

In this case, an Accountant referred one of their clients to us because their client was facing a tricky financial situation. The company was experiencing cash flow issues and the bank had insisted on an independent Accountant’s report by a firm of Insolvency Practitioners. This is often a pre-curser to the bank appointing Administrators.

Complex funding solution found

The company was a specialist contractor with a complex funding requirement. The business was already funded through a mainstream bank, with borrowings of approximately £900,000. However, the director now wanted to exit the bank entirely due to a breakdown in their relationship.

The funding consisted of:

  • £500,000 Confidential Invoice Discounting (CID) line
  • £200,000 business loan
  • £200,000 overdraft.

The deal was a complicated one because of the large sums involved and because the client wanted to exit the banking facilities entirely. This meant that new funders had to be sourced for all three funding lines.

We spoke to one of our contacts who was experienced in dealing with matters of this monetary size and complexity, and we were able to help the business source all the funds it needed.

All three incoming funders had to time the transfers to perfection to ensure that they were all executed at the same time. The solutions that were found were:

  • a Contractual Invoice Finance facility which was better suited and more supportive for the business
  • a different mainstream bank who provided a £100,000 loan to pay off part of the overdraft
  • the remaining balance of the loan was raised through the new contractual facility (funding contractual debt which was previously not funded)
  • the business loan was paid off via a mortgage against an unencumbered business premises.

The director was very happy with how the process was managed to achieve his desired outcome.

A great network of expert contacts

Clarke Bell have built up a fantastic network of experts who are able to provide a wide range of financial solutions for companies both large and small.

This is a great example of how we can help companies deal with financial issues – even where the solution is a non-insolvency one.

For more details about how we could help one of your clients, give us a call on 0161 907 4044 or email [email protected]

Sorting out cashflow problems at a restaurant

Background

The restaurant started trading and employed fifteen members of staff.

The owners did lots of marketing which attracted a good flow of customers throughout the initial period of trade. The director was confident that trade would further increase once word of mouth began to spread throughout the local area.

The problems

Unfortunately, due to the Recession, sales began to decline as people were dining out less frequently and spending less money when they did.

The restaurant had further issues caused by a significant price increase on their food supplies. This put a further strain on the company and in their first accounting period they made a loss. Nevertheless, the director was confident this could be turned around.

To add to their difficulties, the restaurant was also faced with increased competition as other restaurants opened up in the area.

Just over a year after they opened the owners of the restaurant had run out of funds to invest in the company, and they had no solution as to how they could turn things around.

The solution

The restaurant owners discussed their situation with their Accountant and they recommended they came to us for our specialist advice.

Our senior partner met the owners for a (free) consultation where it was clear that the company was insolvent – i.e. it could not pay its bills when they fell due.

(Company directors are not allowed to trade a company knowing that it is insolvent.)

The people the company owed included suppliers, the bank, the council and HMRC – which is very typical for restaurants in this situation.

It was agreed that the best option was for the owners to instruct us to help them with a Creditors’ Voluntary Liquidation (CVL) to formally and legally close down the company.

The assets of the restaurant were valued by independent agents. There were fixtures and fittings worth several thousand pounds, along with some stock worth several hundred pounds.

New business starts up

The assets were of little value to anyone else, but a former employee of the restaurant was interested in purchasing them because they wanted to start a new restaurant, learning from their experiences.

So, they were allowed to purchase them at the value agreed by the independent agents and were then able to start up a new restaurant.

Do you want help with cashflow problems at your restaurant?

If you do, just contact us now on 0161 907 4044 or [email protected]

We can help you deal with the financial problems that your restaurant is having.

Our initial advice is free.

Accountancy firm turns around its cashflow problem

The difficulties

A two-partner firm of Accountants was experiencing severe cashflow problems primarily arising from a temporary absence from work by one the partners due to ill-health.

Before speaking to Clarke Bell, the partners had attempted to get support from their main creditor. This had proved unsuccessful however, and the company was being asked to pay a substantial contribution towards its outstanding liabilities. Had they made these contributions the effect on their cashflow would have meant that future trading would have been unviable for their company.

However, as a result of not agreeing to make the payments, they were advised that the creditor would start recovery proceedings against them. Indeed this creditor did present a winding-up petition which forced the directors to do something.

While all this was going on, the company was also suffering cashflow problems due to the slow payment of many of its debtors. (A familiar story for many businesses.)

The company had insufficient funds to enable it to make a profitable return in the short term and the partners knew the company couldn’t pay its debts. So, they called Clarke Bell for advice regarding what they could do to enable them to continue trading their business.

The options

Clarke Bell undertook a review of the firm’s situation, including:

  • A financial review
  • A review of existing contracts and ongoing Work In Progress
  • The management and staffing requirements
  • An independent evaluation of the company (including goodwill).

We needed to assess whether an immediate sale of the company would be the best outcome for the general body of creditors. This involved assessing additional information, including:

  • The customer base and value of the trading name
  • A valuation report which considered the market value of assets as a going concern, as well as on a break-up basis.

No known party expressed an interest in purchasing the business. We did market the business as a going concern, but this didn’t generate any interest due to the specialised nature of trade and, particularly, the imminent recovery proceedings.

A Creditors Voluntary Liquidation (“CVL”) was considered. However, this was not the best option because:

  • Employee jobs would be lost
  • The goodwill element, which would enable a better outcome for creditors, would not be secured
  • The realisation of any Work in Progress would be lost, as the company would have to cease trading.

A Company Voluntary Arrangement (“CVA”) was also considered. However, this option was also rejected because there was insufficient cashflow to assist on-going trade.

The best solution

It was determined that the best option was for the company to go into Administration.

A purchaser was found – being a company with similar directorships and shareholdings. They purchased the fixed assets, intellectual property, stock, customer contracts, supplier contracts and the goodwill.

The sale was recommended by an independent agent because it would result in a higher amount to the estate. From the purchasing company’s point of view, the goodwill element of the business was of particular interest to them.

This solution meant there was a transfer of employment contracts – so the jobs of all six employees were protected. Since the key management was to remain in place, the company’s Work In Progress (which relied upon that management), could be finalized and thereby make trading viable in the long term.

The future

The Administration was accepted by the company’s creditors, as they could see that this was the best option in terms of the dividends they would receive.

The company is now successfully trading in its new guise, with the partners, staff and the company’s loyal client-base all delighted with the outcome.

John Bell, the Administrator and Clarke Bell’s senior partner said:

“This is a perfect example of how successful an Administration can be when a company gets into this kind of predicament.

Having taken this approach the business, its staff, clients and creditors are all in a stronger position.”

Distressed business gets help to Re-start

The problem

Our client was a small firm in a very niche sector of manufacturing. It ran into problems due to the recession, but its problems were made worse when its bank reduced its overdraft facility. This was to be followed by a further reduction three months later, with the facility being fully removed by the end of the year.

This put the company under significant financial pressure, so the director sought advice from his Accountant. He advised him to speak to Clarke Bell.

However, the director wasn’t yet ready to speak to an Insolvency Practitioner. He continued trading, but things got worse.

The director decided to address this by taking out a loan against his house to pay off some of the company’s debt. Despite making a substantial payment to their major creditor, this creditor took out a winding-up petition against the company for the remaining balance.

Getting the right solution

It was at this stage that the director called Clarke Bell. It was clear that there was no prospect of the company surviving in its current state.

Had the director seen us before paying his creditor, we would have advised him to Liquidate the company and put his funds into a new business. This is perfectly legitimate and a very effective way of dealing with this type of scenario.

In this case, however, it was too late for that. The solution here was to cease trading and put the company into a Creditors Voluntary Liquidation (CVL).

New funding for a new business

There was potentially a very good business that could still be salvaged from this situation – if the right financing could be found.

Prior to the Liquidation independent agents had valued the company’s assets and found a potential purchaser (a director of the company).

Clarke Bell introducing this interested party to financiers who were able to use the asset value of a highly specialist piece of equipment the company owned. The company had been in a factoring agreement but we were able to facilitate its termination and introduce a new factoring company who offered very favourable terms and support for the new company.

John Bell, senior partner at Clarke Bell, said:

“I am very happy that we were able to find a workable solution. It took a lot of hard work, but we managed to get a great result for everyone concerned.

The business can now push forward without being saddled by old debts.”

Would you like to sort out your business cashflow problems?

You can have a free consultation to see how you can best deal with your particular financial situation.

Give us a call on 0161 907 4044 or e-mail [email protected]

Before you put any more money into your company, contact us.

And if you do instruct us, we will deal with your creditors. This will leave you free to get on with other aspects of your business.

You can put an end to the stress and worries that you are likely to be experiencing.

The sooner you contact us, the sooner you can get things sorted out.