Information Technology Case Study
The business traded initially as a broker for refurbished computer systems and then moved on, after a few years, to selling enterprise IT solutions and services, which proved successful.
The company had an agreed overdraft facility with its bank and this was permitted through a debenture and personal guarantee from the directors. In 2014, the business had a turnover in the region of £500,000, with a loss of some £50,000.
Loss of main client
The company’s main client was based in Scotland and after some nine years of trading, the company received news that this key contract was to end. The reason was that the client had purchased other technology outside of its existing framework and so was incompatible with the company’s offering.
Things went from bad to worse, despite the fact the directors made every effort to turn matters around. This included finding a new investor and gaining more cash from shareholders. But, poor business advice and a downturn in the economy meant that trading was becoming increasingly difficult. By the summer of 2014, there was little business activity and the directors had to inject more of their personal funds to keep the firm afloat.
The company now owed £56,000 to its largest supplier and the director tried to manage this by arranging a payment plan. However, it was not able to keep up with the instalments.
Further, there were also debts of nearly £100,000 to trade and expenses creditors and HMRC, as well as the directors being owed £35,000.
As they tried to find a solution, the directors contacted another IT consultant company to see if they could sell up. After negotiating, the assets which had been independently valued, were sold, including the contracts to an unconnected party for £10,000 plus VAT.
Company Debt was taken on to provide guidance to the directors and the firm was placed into Members’ Voluntary Liquidation.