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Case Studies

Protecting Director’s Guarantees

We were appointed as Liquidators of a plant hire company. In addition to a number of recent asset purchases subject to finance obligations, the company had a large stock of plant free of finance obligations and a debtor book free of any encumbrance. The company operated from a rented yard.

The company had a substantial overdraft facility, secured by way of a mortgage debenture over the assets of the business. In addition, the directors had given a personal guarantee (limited to £100,000) in respect of the overdrawn bank account.

To protect the personal position of the directors we needed to raise sufficient cash from asset sales and debtors to pay off the bank in full, after allowing for a chunk of funds to go to the Preferential Creditors.

Because our fees come first, it’s important that we gave excellent value for money. In addition, we have built successful relationships with commercially astute agents, valuers, auctioneers and debt collectors which allowed us to maximise the realisations in this case, protecting the directors from recovery action by the bank.

Resolving a Shareholders Dispute

A three way shareholder dispute was referred to us by a solicitor. Two brothers and a third party had set up an internet trading business; all were shareholders and directors. There was, of course, no shareholder agreement. In the inevitable falling out, legal bills started to mount. By the time we were instructed, the arguing had gone on for a year. The third party had been dismissed as a director but there was no resolution of the dispute in sight.

One option could have been to petition for a compulsory winding up, but this would have destroyed any value in the company, and was not an attractive option.

The company traded from a small warehouse in Cheshire. The stock was of limited value (after two poor summers, the largest boxes of stock were children’s trampolines) and the basis of the business was the directors’ contacts with other trading companies. There was no secure market, no supply contracts and no barrier to entry to any competitor.

The minority shareholder wasn’t happy with the offer he had received – he believed the business was worth £300,000. He instructed an expensive firm of Manchester accountants to carry out a valuation, although two valuations (the most recent at £75,000) had been done during the period of the dispute.

The company’s internet trading was made possible by a credit card facility. The bank only granted the facility on the basis of a director’s guarantee. The director threatened to withdraw his guarantee. The company would have been unable to trade and become insolvent. The two remaining directors were able to place the company into administration. The value of the company was clear; two valuations were available. The directors bought the business at a fair value, regaining control.

Instant Protection from a warrant

We were asked to meet the director of a children’s play facility on a Wednesday afternoon. The business had a healthy order book for children’s parties and a regular stream of kids and their parents every day.

Over the previous couple of years the business had not hit its turnover targets; despite managing to pay down bank and finance debt and keep the landlord happy, the business had fallen into arrears with the electricity supplier.

The director was looking to exit the business and the facility manager had expressed an interest in buying the business which, on a day-to-day cash flow basis was viable.
Then the bad news; the arrears were so serious and had been unresolved for so long that the electricity supplier was seeking a warrant of entry in the magistrates’ court to cut the supply. Oh, and it turned out the date of the hearing was set for the following Friday morning – 36 hours later.

After a Thursday discussion with the manager, the bank and some quick document preparation and furious faxing, an administration was obtained on the Friday morning, protecting the company, defeating the electricity supplier’s warrant and keeping the business open.

The business was sold to the manager on the same day, preserving the goodwill of the business and maximising the return to creditors. Employees retained their jobs and the deposits paid for the children’s parties will be honoured.

Protection from a Landlord who was about to distrain

We met the directors of a small joinery company. The business had been trading for eight years but the downturn in the construction market sector affected them badly; increasingly competitive tendering and cost over runs had resulted in losses. The company were also committed to a loss making contract.

The company had assets, but traded from a rented warehouse and stockroom in the middle of a site owned by their landlord – to whom they owed £30,000.

The landlord would have been within his rights to distrain on all of the assets in the warehouse and stockroom, resulting in no funds being available to any other creditor.

We’re small enough to move quickly and obtained an administration within two hours of an initial site meeting, protecting the assets from the landlord to maximise the return to all creditors.

Protection from Bailiffs

The business was a small, family owned metalworking company in Cheshire. They had taken on an employee a number of months ago who, in contravention of both his training and common sense managed to injure himself in an industrial accident.

The case against the company ground its way through the Courts. We were called in as the case reached the High Court in Leeds. The company had run out of money to defend itself; judgement was expected to be £60,000 including costs.

The owner’s sons wished to buy the business but were concerned about an adverse judgement being granted and bailiff action to seize the company’s property.

We arranged for a fair market valuation of the company’s assets and business to establish the true value of the company. Following judgement, the directors placed the company into administration. The administration protected the company from possible bailiff action; we sold the business to the owner’s sons as a going concern for full market value, maximising the return to creditors while preserving jobs and the value of the business.