Civil Engineering Company CVA Case Study

Our client is a civil engineering company based in the Midlands.  The company approached KSA after consulting with a  Leicestershire insolvency practice. The lead partner of that IP firm suggested a CVA was the best option and introduced the directors to KSA Group, as he knew we have deep CVA knowledge and experience. Over the last 20 years we have worked with many construction companies to recover from bad debts, poor decision making and lost contracts.

The business was having financial difficulties due to the loss and cancellation of a number of significant contracts and very slow payment by debtors. This meant the company was overstaffed and needed to cut costs.

The company had a turnover of c£10m in the 12 months to 30^th June 2022. However, sales for the next 12 months were forecast to sharply drop to c.£3.5m.

Despite the loss of the contracts the company was profitable, it had solid work in progress and a decent solid order book moving forward. It’s main client, encouraged the company to explore turnaround mechanisms, including a CVA, to provide some comfort and confidence in the company moving forward.

Reasons for doing a CVA:

• Higher realisations from future trading activities compared to ceasing operations.
• Assets like debtor books, work in progress, and machinery would not face severe reduction in value.
• The CVA would result in certain creditors’ claims not crystallising, reducing the total creditors’ claims.
• The business would continue to trade and generate profits, benefiting creditors in the long term.

After discussion with our Advisory team, the company took several steps to cut costs and overheads.  Using the CVA mechanism the company vacated unwanted leased premises in Leicestershire.  KSA Group were able to negotiate with the creditors using our highly detailed viability forecasts and professional experience to avoid any legal actions being taken.  The banking facilities were kept, and the bank stood outside the CVA as it was a secured creditor.

Just before the nominated supervisor was due to review the CVA proposals and forecasts, a creditor issued  a winding up petition. This was a major diversion of time for the directors. KSA negotiated with the petitioner on the company’s behalf and the petitioner agreed to withdraw the petition and support the CVA process.

Sales are forecast to be £3,440,100 in the first 12 months of the CVA period. Number of employees’ jobs saved is 5. No jobs were lost.

Dividend Payable to Creditors

The company will pay creditors £1.8m over 5 years.  This represents 100p in the £1 return to all creditors. The director’s loan account will be repaid over the first 24 months of the CVA at £660 per month.

What was the outcome?

The creditors agreed to the CVA, allowing the directors to remain in control of the business. The company will continue to trade and is expected to make higher returns to its creditors than a liquidation – especially after a winding up order would have led to nil recovery. The managing director has also committed to making necessary business and management changes to ensure the company’s viability in the future.

Back in January of 2023 the CVA was approved by creditors and the director was so happy at the result that he sent our Advisory team a huge bunch of flowers!

KSA Notes:

If you run (or advise) construction company facing cashflow difficulties start talking to KSA soon. We are seeing HMRC building collection pressure where VAT and PAYE are in arrears and sending in HMRC field officers and even issuing winding up petitions.

With a carefully constructed turnaround plan, our expert turnaround and insolvency advisors can help the company build a CVA proposal that has a very strong chance of being approved by creditors. We can liaise with all creditors, HMRC and landlords to build a consensual workout that maximises recovery for creditors, whilst leaving the company under the board’s control.