We were approached by the directors of a brasserie-style restaurant that had lost trade due both to the recession and increased competition. Cash-flow problems ensued, followed by increasing tax arrears. The directors responded by ceasing shareholder dividends, cutting costs and reducing overheads. These measures, whilst stabilising cash flow, did not raise sufficient surplus cash to reduce the companys historic debt burden.
We worked with the companys accountant who produced cash-flow projections that showed the business not only to be viable but, if given the opportunity by creditors, would give them a much higher return than if placed into liquidation. Accordingly, Bailey Ahmad assisted the directors in formulating a proposal for a Company Voluntary Arrangement (CVA) based on contributions of a portion of each months profits into a fund over a period of 5 years. This was subsequently accepted by creditors with the following key terms:
Monthly contributions to the CVA of a share of profits after tax for a period of five years
Structured repayment of directors loan accounts due to the company
Creditors to receive 75 pence in the pound during the term of the CVA, compared to a nil return in a liquidation scenario.
The CVA preserved both the companys business and the jobs of its staff
Creditors received a greater return than in the case of liquidation
The landlord continued to benefit from rental payments
Ongoing trading relationships with suppliers were maintained
Personal guarantees provided by the directors to the landlord and secured creditors were not called upon
The business was given the opportunity to recover and flourish over the long term.
If you or your clients would like to know more about CVA’s, please call Paul Bailey or Tom Ahmad on 020 8662 6070 for confidential advice.