Case study 7 Marketing company lost main client. Worried about personal guarantees!
Facing a massive blow to her small company, our client found her accountants and legal advisors were unable to suggest any other strategy but "close it down and start again".
Given she faced personal guarantees to the company’s lenders, she faced losing money personally and possibly her home. In addition she wasn’t happy with this close down strategy as she felt it would affect the relationships with her clients.
Our client is a small marketing and design company, the business lost a major client after she had worked hard to secure the contracts and spent several years of building up its value to nearly £200,000 annually. With total sales of £320,000 this was a massive and potentially fatal blow to the company to lose 60% of its revenues.
The loss was not foreseen and no plans had been put in place to deal with this loss. On reflection the director stated she knew she should have acted sooner.
So the objectives were to survive, cut costs, re-size the business to a more realistic level and keep a roof over her head personally. Office property was superfluous as she now wanted to work from home or a shared office nearby. The 4 employees were not needed full time; one was to be retained part time.
What was our solution?
Given that most of the “intellectual property” was in her head and the business had little value, we recommended a structured business asset sale. The 4 employees were made redundant immediately to allow them to claim benefits. Some were very unhappy about this but we helped explain that there was a chance of some recovery of their redundancy and lieu of notice from the Redundancy Payments Office, if and when the company was liquidated.
The strategy also required the sale of the business’s servers, customer database, work in progress, computers and furniture - the next step was to ensure that this was properly valued. We introduced a Chartered Surveyor to do this work.
Finally, we prepared the contracts for sale and led the deal structure. We negotiated with her new company to purchase the assets for a modest sum, but one that did not trigger concerns on “transactions at an undervalue” (s238 Insolvency Act 1986 requirements).
The customer base, which is now much smaller, work in progress and physical assets were sold to “newco” and the newco now trades quite well.
“Oldco” has collected in its debtor book, paid off the factoring company in full, thereby removing personal risk from her personal guarantees.
A modest amount of cash was collected and this is being used to liquidate the old company.
We introduced a new invoice finance company to compliment her own modest loan to newco thus providing the working capital to trade
This client approached us through our website www.cheswickcapital.co.uk and we provided introductions and a solution within only 24 hours!
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