CVA Case study – Scottish Based Retailer

The director of a retail company (with a single store) contacted Marie Moody of KSA to discuss the company’s present financial situation.  Then, after a subsequent telephone conversation with KSA regional manager Derek Robinson, a meeting was requested and held at the company’s premises.

KSA was appointed to assist the company with a Company Voluntary Arrangement (CVA) in late January 2014. Turnover for the year to 31st December 2013 was c£212K which was a 12% decrease on previous year.

The company was encountering financial difficulties due to:

• Lack of adequate management due to director’s illness
• Serious arrears with suppliers
• Decline in sale due to reducing stock
• Inability to adhere to time to pay (TTP) arrangements with HMRC and suppliers.

Premises

• The company operates from leased retails premises.  Negotiations were held with the landlord who was fully supportive.

Employees:

•  The company employed 6 staff including the director.
•  Unfortunately 3 staff were made redundant as part of the CVA to reduce costs.

Secured creditor – Pension

• The company’s only secured creditor (secured with a registered legal charge or debenture) is the pension scheme owed c£40K on loans made available tot he company which by insolvency law stands outside the CVA and is repaid in full via the agreed payments.

Bank & Financial facilities

•  The company had an overdraft facility of c£15k which was unsecured.
•  There was also a credit card with the same bank with a small outstanding balance of less than £1k
•  The bank had taken steps to recover these monies via the directors personal guarantees P.Gs
•  The company had an alternative account on a cleared funds basis.

Directors

As detailed above, the director’s had provided Personal Guarantees (P.Gs) to the unsecured bank.

Connected/associated creditors

– 3 connected creditors owed £36K accumulatively.

This class of creditor does not attract a dividend under the CVA.  The connected/associated creditors decided to propose that If the CVA was approved by the creditors it was their intention to convert their debt to convertible redeemable preference shares. The percentage of their debt to be converted would be the same percentage as the dividend proposed to the unsecured creditors in the CVA with the remainder of the connected (associated) debt being written off

Unsecured Creditor debt:

• £148K of which HMRC was 20%. Which means that HMRC unusually was a minority creditor and could not absolutely approve or reject the CVA on its own

The nominee’s review was held and the CVA and nominee’s report were subsequently lodged at court. The CVA proposed 35p in £1 repayment to unsecured creditors over 5 years and was subsequently approved by the body of creditors at the recent creditors meeting.