Trading and commercial organisation RCS has turned down their option to use a pre-pack administration as their preferred company rescue measure, instead agreeing a deal to enter into a Company Voluntary Arrangement (CVA) after securing the majority approval required to have it officially enacted.
It is believed that the CVA has saved 70 members of staff their jobs, after an extended period uncertainty which saw 30 previous employees be made unfortunately redundant, and questions arise about the future of business.
The company managed to secure 95% approval from its creditors – despite only requiring 75% of the votes from its creditors by value in order to have their CVA set up – and of this 95% it has been disclosed a staggering 99% authorised their passage into the new arrangement.
Michael Todd, managing director of RCS, identified cash flow difficulties incurred by a new ‘discounting arrangement’ as the driving force behind his company’s financial plight, and criticised banking authorities for worsening the situation by encouraging the firm to ‘walk away from their debts through a pre-pack’.
“The debts arose through difficult trading in the recession, an unwise capital investment and, most critically, the extremely disappointing stance of our bankers in 2013,” said Todd.
“The cash-flow they promised us through a new invoice discounting arrangement was not forthcoming and this resulted in us falling behind with payments to creditors. As soon as those debts fell beyond their credit terms, they became payable in full meaning that the problem of the cash-flow held back from the bank was massively compounded.
“The situation was made worse by our bank then describing us as a distressed borrower, despite them being the very people causing the distress, and foisting a notorious accountancy firm on to us. The first thing they did, before even looking at our books, was tell us to pre-pack the business and, in their words, ‘walk away from all our debts’.”
Company rescue organisation KSA Group has been assigned to preside of RCS’s CVA, with member Eric Walls being assigned the role of insolvency practitioner.
The businesses liabilities were frozen back in March and the initial payment towards their oldest debt is set to be made via their CVA in the upcoming weeks within Aguust.
Their total debt is currently valued at £5,604,371.69, of which a sizeable £2,010,152 is outstanding to secured loan creditors, £2,298,982 unsecured loan creditors and around £1,100,000 to contingent creditors.
The business recently offered to contribute 52p in the pound to all the unscured creditors it still owes money to over a 5 year period, equating to an overall repayment of £1,032,000 of the total 2.3 million debt. Of this total repayment, a first payment of £96,000 is expected during the first year of its CVA, a further £144,000 during the following year, £180,000 in the third year, ££264,000 in year four and £348,000 in its final year.
“We have been in business for 30 years and have always taken a huge pride in being honest and sincere, but the unrelenting pressure of the ‘pincer’ operation between the bank and their chosen accountants was almost insurmountable and nearly broke us,” said Todd.
“The only thing that sustained us was the unwavering support of our employees and suppliers, which has been both encouraging and humbling in equal measure.”
A key element of the company’s repayment plan is its ability to submit extra CVA payments via the clearing of its subsidiaries’- Snap’s- outstanding balance.
Under the terms of RCS’s CVA, any profit acquired by its subsidiary Snap will be considered for re-allocation into its CVA, though this will be done in accordance with the returns and cash reserves available to Snap.
“The building that Snap owns is valued at about £750,000. We’ve put it on the market and owe the mortgage company just over £200,000 so that’s a substantial amount of money that will come back into RCS and be used for the benefit of the creditors,” said Todd.
“The thought of leaving our suppliers high and dry was something that we simply could not countenance and fortunately, with the help of KSA, we have found a solution that gives us the opportunity to make things right with them,”
“A CVA is not something anyone would choose and through the process many painful decisions have had to be taken. We’ve gone through the business and looked at what wasn’t making money and what we could sacrifice.
“We’ve sold some equipment but we’re managing to produce everything that we’ve produced before. There are elements that we now have to outsource although most things we still continue to do in-house.” RCS, first set up back in 1982, has released positive initial forecasts for their sales during the initial 12 months of their CVA, estimating an overall intake of £6,2 million in the upcoming year.