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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.”

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