Leisure business with unprofitable division
Background
This partnership formed in 1997 and had been historically profitable selling caravans on three static caravan parks near Great Yarmouth. However, in 2002 their parks reached near capacity and the partners needed to develop a new site.
They leased a new site, obtained planning permission and began to sell caravans on that site. However, in the autumn of that year the landlord received an offer for the entire property and rather than lose the profitable caravan park the partnership acquired the property including a hotel located on the site, financed by a secured loan from the bank. The partners were not hoteliers and the trading of the hotel was unsuccessful and in autumn of 2005 found themselves under pressure from creditors and the bank due to critical cashflow problems.
The partners had borrowed heavily from the bank who had lost confidence in their trading. The bank asked McTear Williams & Wood to advise the partnership on the way forward to reduce their indebtedness while still allowing the partnership to trade.
What we found
The caravan park was profitable but the hotel had drained all the partners’ resources. The hotel had a significant market value and if sold the proceeds could be used to partly repay the bank and also to provide funds to make a proposal for a partnership voluntary arrangement (“PVA”) viable. This would then allow the profitable caravan park to continue to trade on in its own right.
What we did
A cashflow forecast was then prepared with the partners which showed that once the hotel had been sold the partnership could trade profitably in the long term.
There was pressure from walking possession creditors and in order to protect the position a CVA with a moratorium was filed in the Norwich County Court allowing the partnership to trade under its protection.
Estate agents were instructed to market the hotel with a specific brief to sell the hotel within 6 weeks which in a short space of time resulted in a sale providing funds which were used to partially repay the bank and provide an initial contribution into a PVA.
During the period of the moratorium the day to day cashflow of the business was closely monitored by the McTear Williams & Wood team and this trading proved successful to the point where the PVA was eventually approved by creditors.
Following the approval of the PVA there have been several contentious issues to resolve. In particularly, we helped negotiate bespoke credit facilities allowing the partners to purchase caravans within the constraints of their cashflow.
The PVA is in its third year and continues to meet its commitments within the PVA with resultant dividends being as forecast.