The problems: Circling the Drain
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.
One of the company’s main creditors was the Inland Revenue. 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, they 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 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 Newco.
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.“