The packaging industry has like many other industries struggled with price squeezing and increases in the cost of raw materials. The company had also incurred bad debts and lost turnover from loyal customers whose businesses had been sold. This meant that the company’s turnover had declined from circa £1.6M to just over £1M a year. The cash flow shortfall had been picked up by the directors who had taken out a debenture to secure their investment. After taking advice from their accountant, they were advised against injecting even further money into the company.
Solution
The Business Debt Advisor was instructed to provide the company with advice, and a detailed review of the company’s financial position was undertaken. The directors were at retirement age and were keen to explore a sale of the business.
The TBDA team prepared Business for Sale particulars and the sale was marketed to over 1,000 relevant contacts. Interest was received from 36 interested parties. In situ sales were explored but for a variety of reasons including work needed to be done on the property and a significant employee liability, parties were deterred from an in-situ going concern sale.
APPROVED ADMINISTRATION SOLUTION
The plant and machinery were sold with the use of specialist plant agents for sums much higher than the depreciated book value. A number of the machines were sold to a local competitor who acquired the IPR and customer list, design and customer name. This gave them the ability to successfully convert more than 50% of the customer base and materially increase their turnover.
The administration involved trading for 4 to 6 weeks to convert stock into completed orders. This provided time to market the business, demonstrate the plant was in good working order and cover the costs of occupying a large manufacturing unit.
Within 6 months of the appointment, we had sold all the assets cleared the manufacturing unit which was a significant task and pay the debenture holder in full. The administration was converted to liquidation and it is likely that unsecured creditors will receive a reasonable dividend.
Careful consideration must be given to all options available to a financially distressed business.
