Case study 1 – Manned Guarding Company Asset Sale
Rescued by a CVA in 2010, this manned guarding company based in east London called us for help in late 2011. Sales had grown steadily to around £1.3m pa, but break even levels were hard to budge down from £1.5m pa.
We looked at the cost cutting issues again and again, but without taking out the fixed cost of the directors, the losses would continue.
With our help a cashflow model was revised that showed how long cash would last if Bibby continued to provide factoring at 80% drawdown. The answer worried all of us. Our work showed that Christmas wages may not be paid in full.
Our strategy was to help the directors cut costs and with the CVA in place the directors could be removed as employees. Thereafter, they would stand down as directors and officers of the company.
OR option 2 was to assist them to find a buyer, sell the trading contracts and preserve the 90+ jobs not including the board of directors.
A local rival with an emphasis on cleaning contracts was trying to grow its security/ manned guarding business. Cheswick helped negotiate the deal, built the contracts for the business and assets to be sold and introduced a formal valuation company called Winterhill Largo plc to value the assets, the contracts and vehicles.
A deal was done just before Christmas 2011, it was a tight deadline because the company's slow sales meant that there was insufficient drawdown to pay all the wages. The buyer took on the wages shortfall, thus paying the valuation set by Winterhill. So, all employees were transferred to the buyer. The directors agreed to step down, one now works as a freelance consultant to the buyer.
As directors they correctly MAXIMISED the interests of creditors, they saved 90 jobs and they raised sufficent funds to pay for a creditors voluntary liquidation. The factoring provider was quickly paid off in full including exit fees. No personal guarantees were called up.
Clearly, the moral of this case study, is this - leave it too late and none of these benefits could be yours. Act now and get a dying business sold before cash runs out. You have a legal obligation to act in the best interests of all creditors. So, by sitting around waiting for the cash to run out, are you acting properly?