Using a CVA to survive and prosper

Derek and his fellow directors of an engineering company were in despair. The business was suffering from severe cash flow problems as a result of falling sales and their accountants suggested that they speak to us.

At first glance it looked like there was no alternative to liquidation

• The company had been making losses for several years
• The debtor book was factored
• The bank was nervous and the overdraft facility was in jeopardy
• The assets were owned by a finance company
• There were significant rent arrears due to the landlord

Looking into a CVA as the solution

But the management team were prepared to fight for survival and that encouraged us to look to a CVA as the solution. We discussed the problems with the factoring company, which agreed to support the company. We negotiated a renewal of the bank facility, which accepted that calling in the facility would not get it anywhere and a CVA could only improve the financial position. We persuaded the finance company to leave the equipment in place provided the monthly payments were maintained. The landlord agreed a deal whereby future rent was paid monthly with a small additional contribution towards the arrears - he was hardly likely to find another tenant quickly.

Whilst we battled on the finance front, the directors concentrated on generating sales. With some lucky breaks, the order book increased. They also spoke to customers and suppliers, a couple of whom were even prepared to offer better terms to help save a customer and the other suppliers were prepared to continue on COD terms.

A successful outcome

To cut short much discussion and consultation, we were able to persuade a sufficient majority of creditors to accept a CVA on the basis that monthly instalments were paid to us to distribute to creditors.

After six months, with the benefit of the factoring agreement, cash flow improved. Soon even those suppliers on COD terms relaxed and the company is now benefiting from normal credit terms. Derek and his team were successful in generating sales from more profitable markets and the company has returned to profitability.