Facts:

• Referred by: Accountant
• Industry sector: Haulage
• Annual turnover: £3 million
• Employees: 15
• Cash at bank of £320k and reserves of £500k.

Background

A haulage company made a net profit of £120k with a turnover of £3 million in the most recent financial year. Overnight, the company had lost a major contract representing 50% of its turnover.

The haulage industry operates on small margins and with a fleet of vehicles financed by loans. Fixed costs were high and the loss of turnover impacted on profitability. The director reluctantly made redundancies to reduce costs.

The problem

The company was still loss-making despite having made redundancies. As such, there was a limited time frame to attempt to remedy the situation either by obtaining replacement work to get to at least breakeven or by selling the business to an interested party otherwise the company would become insolvent within a few months.

There were 15 members of long serving staff who would have all had significant claims for redundancy and notice pay. The staff were however, in a sector where they could easily obtain another job.

The second hand value of the fleet was such that it would not be sufficient to repay the outstanding finance resulting in a claim against the director under personal guarantees.

The solution

The accountant assisted the director in preparing a twelve-week cash flow forecast. This showed that the company could continue to trade for a few months to allow the director to attempt to sell the business and win additional contracts to save jobs.

The director with the assistance of the accountant monitored the company’s financial performance and we reviewed the solvency position on a monthly basis.

After three months the director concluded that a sale of the business was unlikely and no additional contracts could be obtained we advised the director an orderly winding down needed to be actioned.

We introduced specialist employment solicitors to structure a settlement with staff to ensure the company’s solvency whilst also ensuring the staff were paid quickly. We also advised the director on returning the fleet of trucks to the finance companies in an efficient manner to maximise realisations.

The difference

The director sought advice from a reputable accountant who brought us into the situation as soon as possible. By seeking early professional advice and taking difficult decisions as and when necessary, the director was able to avoid formal insolvency.

Our role was to ensure the director acted within insolvency law in the best interest of the stakeholders, being the employees, creditors and the shareholders.

It would have been straightforward for an insolvency practitioner to recommend placing the company into creditors’ voluntary liquidation.

However, we considered that the appropriate course of action was to support an informal winding down of the business, enabling creditors to be paid in full.

Accordingly, the company was dissolved on the application of the directors rather than the company going into creditors’ voluntary liquidation. Employees agreed to receive cash settlements, excluding notice pay, which meant they did not have to wait for their claims to be processed by the Redundancy Payments Service (“RPS”). At the time, there was a shortage of drivers, allowing employees to secure alternative employment promptly. All employees transitioned amicably into new roles, and the shareholders received the surplus.

An additional benefit to the director was that their personal guarantees were not called upon.