Manufacturing business with funding withdrawn
Background
This third generation family run £10 million turnover company had been trading profitably for many years. Latterly, the Company had suffered from flat turnover and reduced margins, causing the company to be losing £300,000 to £500,000 per annum. The Company was funded by invoice discounting and bank borrowing secured on the Company’s freehold property.
The Company reached crisis point when the factor company demanded full repayment when it became concerned over amounts due to HM Revenue & Customs, leaving the business unable to fund itself. The directors called us in at this very late stage.
What we found
The business was potentially profitable. If it could refinance itself and put its liabilities on hold there was a real prospect that the Company could survive.
It became clear that although the Company was poorly managed it had the support of both customer and suppliers and there was a desire from all sides to see the Company survive, albeit with a different management team.
What we did
There were a number of hurdles not least of which was the factor company’s ultimatum that it would appoint a large London firm as Administrators (which had said they would break up the business) unless they were repaid within days. McTear Williams & Wood working with a specialist agent arranged for just under £1 million in four days to repay the factor and give control of the situation back to the directors. To protect the position of both the creditors and the directors, the Company was placed into administration while a longer term restructuring deal could be looked at. At the same time, the possibility of selling the business was also looked at.
McTear Williams & Wood took over the management of the day-to-day business. A member of our Turnaround Interim Manager Network (“T-IM”) was instructed to prepare a business plan and projections to allow a refinancing, and to look at a company voluntary arrangement (“CVA”).
The business was also put up for sale which generated considerable interest but ultimately this did not produce a better estimated outcome than a CVA.
Another T-IM was brought in as factory manager and ultimately became the new CEO. He worked to restore management control, renegotiated deals with customers and suppliers, changed working practices in the factory and revitalised the workforce.
A deal was struck with the family to reduce their 100% shareholding to 10% to allow the creditors to hold some of the shares and to be used to provide upside and incentivise the new management team.
A CVA was agreed with the creditors and the management of the business transferred back to the new management team.