Case Study – Administration

Case Study – Company Administration

We were approached by an established family run IT company that was looking for a business finance solution that would introduce funds into the company to support cash flow. The IT solution they offered businesses was market leading.  But the uncertainty around Brexit had resulted in existing clients delaying their go-live dates for the new software. These delays had put company cash flow under considerable pressure as the software development costs had been considerable.

Following an initial review, it became apparent very quickly that the company was in a perilous financial position. Company assets were limited and didn’t hold much value and the directors personal assets were heavily leveraged, this ruled out the option of raising asset finance or re-mortgaging the directors residential property to raise finance. Unsecured business loans could not be considered as taking one out would cause a breach of contract with an existing lender. The option of Invoice Factoring was considered and explored with several lenders but was not feasible due to the companies invoicing process.

There were concerns that the company was trading insolvent and we asked an Insolvency Practitioner to complete an audit of the business and provide further advice. As a result of this audit it was confirmed that the company was trading insolvent and that the company would not realistically be able to repay creditors. The directors were accepting of this position and understood that they had certain duties and responsibilities. Additionally, they didn’t want to be accused of wrongful trading and held personally liable for the repayment of certain company debts.

The directors took the decision to appoint an Insolvency Practitioner with the view to restructuring the company. Despite having a healthy order book and working with blue chip and FTSE 250 companies. It was established very early in the process that a Company Voluntary Arrangement would not be viable as cash flow wouldn’t support monthly payments and lenders were not willing to support this insolvency process. This resulted in the Insolvency Practitioner taking on the role of Administrator and entering the company into an Administration process.

Upon formal appointment the Administrator commenced marketing the company to potential buyers. Due to the complex nature of the business, mainly software licensing agreements and an Inter Company complication it took four weeks, to finalise an agreement with a buyer.

The buyer introduced new funding into the company and removed the existing directors. The removal of the existing directors was agreed prior to the purchase and was amicable. The majority of staff were retained and relationships with clients reinforced as the result of the financial stability.

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