Case Study 1 – Insolvency and debt refinancing

A newly acquired events and hospitality provider was experiencing cashflow pressures due to over trading, poor weather, taking on loss making contracts and expensive litigation over breach of contract by the previous owners.

They were in debt to a number of different providers on various terms and products. The business was also in arrears with HMRC and had collected a number of CCJ’s as a result of late payments and supplier disputes.

However, a review of the business suggested that despite all of the factors above, there was a viable and profitable opportunity if the debt could be restructured.

Working in partnership with an Insolvency Practitioner, PAF arranged for the debt to be refinanced with one provider. This enabled the management to take control of the business and conduct a strategic review which resulted in the formal appointment of the Insolvency Practitioner. They placed the business into protective administration with the aim of selling it to the management in a newly formed entity.  The proposed sale was shown to offer the best outcome for creditors. It was agreed and funded by releasing additional capital against the assets which had been refinanced and deferring a significant amount of the consideration against the future cashflow of the business.

The process reduced the monthly finance cost to the business and all equipment was then funded on a longer term (which more accurately reflected its useful working life).  Loss making contracts did not form part of the acquisition and a significant amount of legacy debt was written off in the administration process.  The business now has a simple asset finance arrangement with one provider and can focus on investing its cash into new, profitable opportunities rather than funding loss making contracts entered into by the original management.