Positive options in a difficult market
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Positive Options in a Difficult Market . 9 November 2011. About Leonard Curtis. National Firm 60 Years experience in market 9 main offices 15 IPs A team of 150 staff Independent Cost effective Innovative. The Leonard Curtis Business Solutions Group Delivering excellence nationally.

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Positive options in a difficult market

Positive Options in a Difficult Market

9 November 2011


About leonard curtis

About Leonard Curtis

  • National Firm

  • 60 Years experience in market

  • 9 main offices

  • 15 IPs

  • A team of 150 staff

  • Independent

  • Cost effective

  • Innovative


The leonard curtis business solutions group delivering excellence nationally

The Leonard Curtis Business Solutions GroupDelivering excellence nationally

  • Locations:

  • Birmingham

  • Blackburn

  • Bristol

  • Bury

  • London

  • Manchester

  • Newcastle

  • Preston

  • Wolverhampton


Key issues

Key Issues

  • Dealing with creditor pressure

  • Sources of additional funding

  • Improving cashflow collections and enforcement

  • Positive rescue and restructuring procedures

  • SIP 16 : pre-packaged administrations

  • Directors’ duties and employees


Introduction to case study

Introduction to Case Study


Key facts

Key facts

  • Owner managed business controlled by two brothers

  • Manufacturer of roof trusses

  • 2 trading locations

  • 120 employees

  • Turnover £9.5 million

  • Cashflow pressure – HMRC £500k, landlord £200k

  • Downturn in housing market


Key facts cont

Key facts cont…

  • Unable to pay haulier/redundancies

  • Landlord has distrained and is threatening winding-up

  • On stop with key suppliers

  • Restriction of credit insurance

  • Debtors days increasing

  • Poor financial information

  • Bad debts


Initial assessment

Initial assessment

  • Plan A – Assessment of viability

    • Deal with creditors

    • Additional funding

    • Improve collections

  • Plan B – Formal insolvency procedures

  • Purpose is to understand:

    • The business

    • The drivers

    • The options and strategy


  • Plan a assess viability

    Plan A – Assess Viability


    Dealing with creditor pressure 1

    Dealing with creditor pressure (1)

    • Cashflow forecasts

    • Model must incorporate ABL’s position to monitor reductions identifying severe pressure points

    • Informal CVA

    • Meetings with key creditors/weekly updates

    • Interim management in larger cases

      • Detailed report on company viability


    Dealing with creditor pressure 2

    Dealing with creditor pressure (2)

    Landlord

    • Waiver of distraint order on assets – sell to generate cash

    • Seek agreement for full and final settlement on site 1

    • Propose new payment plan for any arrears on site 2

    • Include increased length of lease

    • Issues for Landlord to consider

      • Empty property rates

      • Preserving investment value

      • Insurance and security

      • Re letting

      • Landlords need for income stream

      • Landlord’s banking covenants


    Dealing with creditor pressure 3

    Dealing with creditor pressure (3)

    HMRC

    • Agree repayment plan

    • HMRC waived surcharges/penalties/interest

    • Crown debt negotiation

      • Developed reporting framework

      • Independent

      • Realistic/achievable payment plans proposed (currently 3 -15 months)

      • Direct line of communication with large debt offices


    Positive options in a difficult market 1359321

    Source: Official Statistics Release July 2011


    Positive options in a difficult market 1359321

    Source: Official Statistics Release July 2011


    Additional funding

    Additional Funding

    • Alternative sources

      • Distress Funds

      • Private Investors

      • Sale & Leaseback (general assets/property)

      • ART/BCRS

  • EFG Scheme

    • Government backed loan scheme

    • Requires business plan

    • 75% guaranteed by government

    • 25% personally guaranteed by Directors

    • Up to £1 million funding


  • Improve debtor collection

    Improve debtor collection

    • Recruit short term credit controller (if none already in place) to support and manage the collection process

    • Prepare detailed assessment of accounts receivable and controls

    • Assess

      • Key customers

      • Risk of loss from bad debts

      • Indicative outcome (worst case)

  • Improve control and audit trails in case of future bad debts


  • Proposal

    Proposal

    In this particular case:

    • Assisted in preparing cashflow and profit projections.

    • Based on these, they:

      • Achieved repayment plan with HMRC for 12 months

      • Deferred key trade creditor payments

      • Renegotiated leases with landlord

      • Sought additional bank lending via EFG/3rd party security

      • Discussions with invoice funder as to possibility of increasing lending at an acceptable level of risk

      • Introduced 2 new possible funders

      • Obtained formal offers and advised on best option

      • Reduced debtor days


    Six months later

    Six months later

    • All of the above was implemented…. however

    • Failure of large house builder led to a significant bad debt

    • Defaulted on landlord/HMRC payment plans

    • No way of replacing revenue in short term

    • Credit insurance withdrawn


    Plan b insolvency

    Plan B - Insolvency


    Administrations and pre packs

    Administrations and ‘Pre-packs’

    • Who can appoint?

    • Appointment procedure and effect

      • Notice of intention

      • Protection/moratorium

      • Floating chargeholder consent

      • Notice of appointment


    Pre packs 1

    Pre-packs (1)

    • A deal is negotiated and agreed prior to administration

    • A sale and purchase agreement is also finalised

    • Immediately following administration, the sale and purchase agreement is complete

    • Possibly common directors

    • Same customer and product base

    • No significant gap in trading

    • Same premises and staff

    • Potentially similar trading name

    • Liabilities remain in OldCo


    Pre packs 2

    Pre-packs (2)

    • Certainty for stakeholders:

      • Directors

      • Shareholders

      • Funders

      • Employees

      • Landlord

      • Creditors/suppliers

    • Creditor objections

    • Practical considerations:

      • Newco viability

      • Price

      • Deferred consideration

      • Bank facilities

      • VAT Registration/bonds

      • Warranties

      • Trading licences

      • Novation of HP agreements


    Greater transparency

    Greater transparency

    • SIP 16

    • Letter to creditors

      • Alternative options considered

      • Valuation of assets and price achieved

      • Why it is not appropriate to trade

      • Why no marketing

      • Creditor discussions

      • PGs given to previous funder

      • Is the previous funder involved with Newco


    Pre pack outcome

    Pre-pack outcome

    • In this case:

      • Sold business to existing management

      • Maintained customer base

      • Preserved all 120 jobs

      • Bank collected out – personal guarantees not called in

      • Landlord kept tenant

      • Creditors kept customer going forward

      • Dividend to unsecured creditors


    Leonard curtis approach

    Leonard Curtis’ Approach


    Initial strategy

    Initial Strategy

    • Listen and learn:

      • Understand business

      • Key drivers

      • Personnel

    • Survival

      • Deal with HMRC & Landlord

      • Key supplier negotiations

      • Additional funding

      • Debtor collections to improve cashflow

    • Consider alternatives:

      • Pre-pack

      • CVA

      • Liquidation

    • Practical help


    Implementation 1

    Implementation (1)

    • Factoring Advisory Service

      • Web based and one-to-one service

      • Free impartial advice

      • New Funding lines for end users

      • Lead generation for all the ABL market

      • Manage away free

      • End user discussions lead to:

        • Possible new client introductions for accountants

        • Additional income streams for accountants and other introducers


    Implementation 2

    Implementation (2)

    • LC Receivables

      • In house collections

      • Specialist experience in credit control, debt collection

      • Resources to maintain effective collection momentum

      • Experience of collections across all facets of industry

      • Director level involvement

      • Account management, detailed reporting capacity

      • Limited impact on funder resource


    Implementation 3

    Implementation (3)

    • Corporate Strategies

      • Assist directors to

        • Formulate plan for turnaround

        • Prepare projections

      • Negotiate with Crown to defer PAYE/VAT/CT

      • Success with defeating HMRC VAT bond demands

    • Leonard Curtis

      • Administration

      • Other insolvency processes


    Directors duties and employees

    Directors duties and employees

    • Companies Act 2006

    • Increased duties

    • Disqualification

    • Section 216 Insolvency Act

    • TUPE

      • Oakland case


    Summary questions

    Summary & Questions


    Our unique business model

    Our Unique Business Model

    Leonard Curtis Business Solutions Group

    Visibility

    Corporate Strategies

    Leonard Curtis

    Factoring Advisory Service

    CorporateStrategies

    Leonard Curtis Recovery

    Simple Debt Solutions

    Risk and Assurance Services

    Debt Advisory

    Funding Advice

    Formal Insolvency ProceduresCorporate

    Formal Insolvency ProceduresIndividuals

    FinanceAppraisal

    InsolvencyAvoidance

    FinanceRaising

    Formal InsolvencyProcesses

    Anticipating a problem

    Solving a problem

    Taking over a problem


    Contacts

    Contacts

    • Paul Masters07921 471000

    • [email protected]

  • David Butler07860 400079

  • [email protected]

  • Ed Preedy 07714 481020

  • [email protected]

  • Offices:

  • Bamfords Trust HouseRegent House

  • 85-89 Colmore RowBath Avenue

  • BirminghamWolverhampton

  • B3 2BBWV1 4EG


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