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Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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11th April 2024

The Southampton-based company was set up initially in 2009 to provide acquisition opportunities for UK private equity companies.

The director was experienced in the sector and had formed the company with the support of contacts. The business premises were occupied under a short term licence.

The business was doing well and it was decided to shift the focus onto corporate finance. This involved giving advice and introductions to firms that were planning to either raise finance or sell their businesses. It is standard practice within the sector to be paid on the conclusion of a successful transaction and for this reason, cashflow was intermittent from the start.

Corporate-Finance-Case-Study

Family investment

However, the director’s father-in-law invested £100,000 into the business, which was subject to one of his associates being appointed as a director, along with being granted 24.5% of authorised share capital. This investment was of critical importance, since the company was not able to obtain funding from the bank.

The company traded moderately well but then problems arose because of a serious dispute between the two directors. The director connected to the father-in-law resigned.

The main director was unable to repay the investment, so it was agreed the resigned director would keep two private equity contracts that were progressing, in addition to the trading name and a cash settlement of £40,000 in  full and final settlement.  It was also agreed that his shares would be transferred back to the original director and his two brothers, who had also been shareholders from the start.

New beginning fails

The company needed to move forward and so it took on a new name and efforts were made to market the firm with fresh impetus. A pipeline developed with new clients able to pay a commitment fee and the director believed that it would be possible to rebuild the business,

But, in mid-2014, a party that was key to a project the business had been working on for several months, suddenly pulled out. As a result of this, the company lost a fee of around £70,000.

Matters went further downhill when the director found out that a shareholder, who had run the company’s finances, had not explained there were outstanding liabilities, which were around £160,000. A worrying state of affairs was revealed at year-end, when turnover was only £25,000, while losses totalled £180,000.

Without work of any significance, there was a realisation that the business could not continue. Following advice from Company Debt, the best  way forward was for the company to be placed into creditors’ voluntary liquidation.