Future secured for long-standing Southampton manufacturer

The client & the situation

Our team worked with the Director of a Precision Engineering Company for several months, following a downturn in trade. The Company manufactured parts for the aerospace and automotive industries, both of which had been significantly impacted by the Pandemic and therefore reduced order volumes. Initially we were engaged on an Advisory basis to assist with cashflow management, negotiate a payment plan with HMRC and advise on Director duties. It was anticipated that the Company could trade out of its financial position. The Company utilised an invoiced discounting facility and we kept the lender updated regularly with regard to progress and our advice.

The Director was considering different initiatives in order to increase income. There was a vast quantity of empty office space, and he decided to rent out some of the office space to generate some additional revenue. However, the “tenants” were subsequently revealed to be a criminal gang who used the office space to set up a Cannabis factory. The property was raided by police, the occupant and Director were arrested and all staff were sent home. The business had not traded for several weeks, cash availability was limited and HMRC were threatening enforcement action. The Director called to explain the position and asked our team to assist with a sale of the business.

• The criminals had wired directly into the power supply – clearly this was a fire hazard, but it also prevented us from using the machinery and restarting trade.
• The staff had been sent home and had not been paid wages – trying to encourage the staff back to work was difficult.
• There was no available cash to trade the business – including for staff wages.
• The content of the Cannabis factory remained onsite – posing a security risk.
• The Director was clearly emotional about the situation and there was a risk he might disengage. 

What we did

We were very fortunate that the Company was the sole supplier of a particular part which was desperately needed by the Company’s biggest customer. They informed us that they had £30m of orders that they could not fulfil without us manufacturing the parts, and said they would do whatever was needed to help us restart trading. It was agreed that they would clear their outstanding debtor balance immediately, which in turn enabled us to negotiate a cash drawdown from the invoice discounter, in order to pay wages and get staff back working. We also increased the unit price of the parts going forward, as well as the payment terms. Whilst cash was an issue, the electricity supply was the main barrier, and we had to undertake some creative storytelling with the supplier in order to get an Engineer onsite to make it safe. We even called the National Grid!
 

The outcome

• The business traded under the control of the Administrators for around 3 months whilst the business and assets were marketed for sale and a sale was executed.
• We cleared the Cannabis factory out and returned the area to usable office space.
• The business was sold as a going concern to an independent third party and all staff retained their jobs.
• The freehold property was sold and the associated bank loan paid in full.
• The invoice discounter was paid in full and there was a surplus to the Administration.
• Preferential creditors were paid in full.
• We worked closely with the invoice discounter, who held a debenture.
• A dividend to the secondary preferential creditor of 40p in the pound.