We received an inquiry from an Insolvency Practitioner (IP) who had been approached by the board of directors of a £30m+ turnover company in the drinks sector which had recently undergone an Independent Business Review (IBR).
The IP felt that the directors needed some advice and support with potentially turning the business around as he believed there was a possibility that insolvency could be avoided.
The business was heavily reliant on an invoice discounting line which had seen progressive reductions in the advance rate combined with a squeezing up of disallowables. The impact of this was to have a drastic reduction on the working capital availability to the business.
It quickly became apparent that the relationship between the asset based lender (ABL) and the company had broken down; and as a result of the outcome of the IBR that had been carried out a couple of weeks previously the advance rate was being progressively reduced.
We were asked to assist in producing such a proposal to the ABL with the additional aim of beginning the process of rebuilding trust between the parties.
We and the company met with the funder and their advisors after four days, and as a result of significant input from us a two week window was agreed to allow the directors, with our support, to come up with a survival plan.
Prior to our involvement creditors were being paid on the basis of who was screaming loudest. This had resulted in the largest single creditor, representing almost 50% of the total, being deferred, without agreement, for over six months before any payments commenced.
The window achieved gave us time to approach the key suppliers and seek agreement to scheduled terms for repayment of the backlog of sums due.
A plan was agreed and discussions opened with the five largest suppliers to achieve their buy in. The three largest agreed, however several ‘business critical’ suppliers were unwilling to accept the terms offered and took action which damaged the supply chain irreparably.
We then began, in consultation with the IP who had carried out the IBR, the process of a managed exit with the aim of saving the business via a controlled administration – a ‘post pack’.
The administrators were appointed with the full agreement and co-operation of the board and with a number of interested parties negotiating for the purchase of parts of the business, one of which has indicated that they may want to retain our services to help with their post acquisition reorganization of the business.
Tactful but successful collection of the remaining debtor book will obviously be crucial for both the acquirer, interested in preserving the goodwill of the business, and the ABL interested in recoveries.
To deal with this we may now propose involving our specialist cash collection service to provide a result acceptable for both parties.
This project emphasised the need for us to be flexible in our approach in such situations, since the initial briefing often does not fully reflect the actual position and range of issues that will need to be addressed; and where subsequent developments significantly affect what outcomes may realistically be achievable.
This case required hands on control and support to a board which had lost direction and focus on both the production of information and the communication of the position on a regular basis to all stakeholders.
When the proposed outcome became unachievable we then adapted our role to meet the needs of the project. This involved us working very closely with the IP engaged by the ABL in the period prior to appointment to maximise the retained value of the business for potential purchasers; whilst also protecting the directors in their discharge of their fiduciary duties.
|What To Do When You Need To Survive an IBR
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