Business rescued

How restructuring and administration helped a logistics business cope with difficult trading conditions.

The situation

The combined effects of the weak pound, the credit crunch and the recession had led to a serious decline in the fortunes of a logistics business near Heathrow. Providing import, storage and distribution services, the business had substantial fixed warehousing and transport costs and needed high volumes to survive. Competitors had already gone to the wall.

When the business lost a major contract things went from bad to worse. The company was persuaded to enter into a company voluntary arrangement (CVA) to deal with its growing debt to HM Revenue & Customs, the landlord and the bank. But the CVA did not address the fundamental issue of deteriorating market conditions and the company's inability to replace the lost contract. Needless to say, the CVA failed and debts increased.

What we did

Malcolm Fillmore, senior partner at Atherton Bailey's Crawley Office, was introduced to the business six months after the CVA. Working with the directors and a new investor, Malcolm put a proposal to the bank (as secured creditor) to reshape the business to reflect current trading levels and shed fixed costs.

A key issue was the landlord, a major listed company who had leased the warehouse but had sublet it, when it became surplus to its needs. If it had got the property back it had little chance of finding an alternative occupier and it would have faced substantial security costs and empty rates liability. So, Malcolm proposed to them that the business should continue to occupy, but pay zero rent through to the end of the lease in three years' time. The landlord agreed.

Malcolm's proposed reorganisation also required an administration, a temporary ring-fence around the company to allow it to operate without the threat of creditors taking legal recovery action. However, because of the size of the bank debt - £400,000 - the bank said they were obliged to use a firm from its approved panel. Since there were minimal realisable assets in the company, the panel firm wanted a £50,000 fee paid upfront by the directors personally. The directors refused, so the panel firm declined to act. At this point, the bank allowed the directors to appoint Atherton Bailey and the scheme went ahead.

The result

The business has been able to continue trading in the still difficult economic environment and it is hoped will survive until the general trading upturn, upon which all logistics businesses depend.