Major Turnaround Case Study

How do you come to a liquidator’s den assuming the worst, thinking it’s all over and 6 months later be in control of that same business with more promise and better financial foundations than you had ever experienced previously? Yea…it sounds fanciful but that’s the position for one client who was grateful to be introduced to a restructuring firm rather than a straight liquidation firm.

Over the last year we’ve had some interesting client problems, but none as challenging and as professionally satisfying as an engineering group that came to us assuming their only way forward was with a liquidator.

The business was facing a perfect storm:

The founder and managing director had recently passed away.
The company was being attacked by a very large customer with deep legal pockets for supply of alleged faulty product.
A senior staff member renegotiated a licensing agreement with a major overseas supplier and then left the business taking the supplier with them.
The bookkeeper of 15 years (who for all intents and purposes had survived in the role far beyond her capabilities) advised one day (without any logical pre-warning) there’s a liquidity crisis and there’s no money to pay the month’s wages.
The company was on its knees with any one of these issues being able to shut it down.

The group was a definite candidate for insolvency protection however upon closer review we recognised there were perhaps sufficient restructuring levers that could be pulled to give it a chance of survival without having to make a formal appointment:

the group structure would be helpful,
we could isolate the haemorrhaging company,
a ring fence could be built around the remaining trading companies,
additional finance could be raised against a semi-protected property if needed.
We thought, as long as the sales performed within a sensible range, the group had a prospect of success without a Voluntary Administration.

We worked through a strategy which involved using the legal system to our advantage, i.e. buying time. We then put in asset protection and trading protection firewalls. The idea was if one company had to fall it should not be cancerous for the whole group.

Managing a tight cash flow, arranging alternative finance, restructuring overheads, reorganising staff and ultimately negotiating a peppercorn settlement for the legal claim allowed the company and the group to steady the ship and set themselves up for a wonderful future.

Although, this client navigated through the storm to safe waters the ‘safe harbour’ law reforms (above) would have been of assistance in managing this type of scenario. In future we hope to be utilising such reforms.