Turnaround Management Association

1
Turnaround Management Association

• Company Voluntary Arrangements
• Eric Walls
• Turnaround Insolvency Practitioner
• Director KSA Group Ltd

2
CVAs and Turnaround

• KSA will present on the use of Company Voluntary
  Arrangements  ("CVA")  in turnaround situations
  and will focus on the practical issues of
  establishing the suitability of CVAs in
  particular situations, getting a proposal off the
  ground, the negotiation with stakeholders and
  creditors, legal and technical issues affecting
  the same.

3
CVAs and Turnaround

• Establishing CVA
• Initial enquiry filtered by trained advisors
• Looking for struggling but viable companies
• Currently insolvent or near insolvent
• Under pressure, management failing
• Need to restructure viable business
• Meet with board on site
• Assess ALL options in detail
• Report in writing as to recommended solutions

4
Formal and Informal Options Available?

• Trade out (TTP) refinance credit crunch not
  easy, tougher HMRC ahead?
• Trade sale Enough time for due diligence, high
  gearing and creditor threats ?
• Administration / pre pack ? SIP 16 and business
  issues
• Liquidation often the case that only option
• Administration followed by CVA ?
• CVA or company voluntary arrangement may be
  suitable

5
CVA Candidates?

• The five key questions?
• Established marketplace / niche within that
  marketplace
• Potential to grow and prosper given
• finance and management needed
• Systems or management fundamentally in place or
  easily implemented
• Management needs determination to succeed
• Chemistry need to work together with advisors

6
KSA Group

• CVA process
• Deal making structuring supplies with creditors
• Control creditors (creditor liaison) we call
  every creditor and explain process and timetable
• Restructure balance sheet (remove pressure)
• Enable structure for recovery, remove people
  /costs
• Framework to introduce financial products /liaise
  with the bank and debt providers
• Extensive detailed financial forecasting

7
KSA CVAs

• Company Voluntary Arrangement
• High levels of due diligence
• Compare all options and assess viability
• Build detailed statement of affairs
• Build very detailed financial models
• What if scenario planning
• Set out strategies to board, bank and advisors
• Agree final deal and then take to creditors
• Typically 4-5 weeks plus statutory notice period
• Say 7-9 weeks overall, or longer

8
CVAs, Banks and Pre-Packs

• CVA has huge flexibility and power
• Can control winding up petitions with case law
  and aggressive counter legal action
• Consensus always best though!
• Many advisors and bankers not aware of the CVA
  approach
• KSA always talks to bank with a plan
• CVAs usually little impact on bank remedies and
  securities
• Most banks against pre-packs to incumbent
  directors / members
• CVA more acceptable now?
• Will landlords start rejecting JJB style CVAs?

9
CVA Deal Structure?

• Generally we set say 40-60 of future net profits
  into scheme
• Typically five year phased deal with monthly
  contributions
• Bank capital payments frozen or continued
• Detailed cashflow determines what is required
• Seek new ABL finance or investment if needed
• RPO picks up claims for redundancy / notice
• Exit property quickly

10
CVA Deal Structure (cont.)

• Often seek introduction of non exec finance
  director
• Improved financial and management reporting
• Determined various unwanted lease / HP deals
• Re Doorbar and Park Air Services
• Standstill agreement on wanted lease/ HP deals
• Exit property, factories, retail outlets

11
CVA Benefits for bank?

• No asset meltdown crystallisation of loss in
  administration
• No loss of securities or remedies
• Improved financial reporting obligatory in our
  CVAs
• Supervisor to police CVA
• Reduction in bank management time
• CVA brings end to creditor pressure
• HMRC Petitions e.g. withdrawn

12
Benefits for creditors?

• Trade creditors get dividend plus ongoing trading
  on cash terms
• Retain a future customer
• Supervisor oversees CVA contractual obligations
• Business must pay future taxes on time
• Mitigates costs to state of benefits, redundancy
  costs
• Default if not paid
• HMRC will closely examine future payments and
  returns
• Return generally better than terminal
• Consensus and involvement - not fait accompli
  like pre-pack

13
Benefits for Board/ Members

• Still managing the business
• No PG call up, no loss of homes
• Remain in control with tighter management
  reporting controls
• Steadily trade out of troubled waters
• Repay creditors who had faith in them

14
CVA Benefits

• CVA is a powerful consensual solution
• Not suitable for many cases
• Avoid asset meltdown
• Avoid intervention by FSA (financial) SRA (for
  lawyers)
• KSA proposed first LLP CVA for a law firm in 2008
• Avoid usual loss crystallisation for charge
  holders
• Restructure business aggressively, remove fixed,
  overhead and people costs
• Cost effective process v administration
• Less risk for office holders too!

15
Eric Walls KSA Group Ltd

• Eric Walls KSA Group
• Licensed IP UK Director of Turnaround
  Insolvency KSA
• Involved in CVA led turnaround since 2001
• KSA has a team of 20 with 2 insolvency
  practitioners
• Cover the country with 3 offices a team of
  regional managers
• Learn more about CVAs and KSA at
• www.companyrescue.co.uk