Positive Options in a Difficult Market

1. Positive Options in a Difficult Market 9 November 2011

2. About Leonard Curtis • National Firm • 60 Years experience in market • 9 main offices • 15 IPs • A team of 150 staff • Independent • Cost effective • Innovative

3. The Leonard Curtis Business Solutions GroupDelivering excellence nationally • Locations: • Birmingham • Blackburn • Bristol • Bury • London • Manchester • Newcastle • Preston • Wolverhampton

4. Key Issues • Dealing with creditor pressure • Sources of additional funding • Improving cashflow collections and enforcement • Positive rescue and restructuring procedures • SIP 16 : pre-packaged administrations • Directors’ duties and employees

5. Introduction to Case Study

6. Key facts • Owner managed business controlled by two brothers • Manufacturer of roof trusses • 2 trading locations • 120 employees • Turnover £9.5 million • Cashflow pressure – HMRC £500k, landlord £200k • Downturn in housing market

7. Key facts cont… • Unable to pay haulier/redundancies • Landlord has distrained and is threatening winding-up • On stop with key suppliers • Restriction of credit insurance • Debtors days increasing • Poor financial information • Bad debts

8. Initial assessment • Plan A – Assessment of viability • Deal with creditors • Additional funding • Improve collections • Plan B – Formal insolvency procedures • Purpose is to understand: • The business • The drivers • The options and strategy

9. Plan A – Assess Viability

10. Dealing with creditor pressure (1) • Cashflow forecasts • Model must incorporate ABL’s position to monitor reductions identifying severe pressure points • Informal CVA • Meetings with key creditors/weekly updates • Interim management in larger cases • Detailed report on company viability

11. Dealing with creditor pressure (2) Landlord • Waiver of distraint order on assets – sell to generate cash • Seek agreement for full and final settlement on site 1 • Propose new payment plan for any arrears on site 2 • Include increased length of lease • Issues for Landlord to consider • Empty property rates • Preserving investment value • Insurance and security • Re letting • Landlords need for income stream • Landlord’s banking covenants

12. Dealing with creditor pressure (3) HMRC • Agree repayment plan • HMRC waived surcharges/penalties/interest • Crown debt negotiation • Developed reporting framework • Independent • Realistic/achievable payment plans proposed (currently 3 -15 months) • Direct line of communication with large debt offices

13. Source: Official Statistics Release July 2011

14. Source: Official Statistics Release July 2011

15. Additional Funding • Alternative sources • Distress Funds • Private Investors • Sale & Leaseback (general assets/property) • ART/BCRS • EFG Scheme • Government backed loan scheme • Requires business plan • 75% guaranteed by government • 25% personally guaranteed by Directors • Up to £1 million funding

16. Improve debtor collection • Recruit short term credit controller (if none already in place) to support and manage the collection process • Prepare detailed assessment of accounts receivable and controls • Assess • Key customers • Risk of loss from bad debts • Indicative outcome (worst case) • Improve control and audit trails in case of future bad debts

17. Proposal In this particular case: • Assisted in preparing cashflow and profit projections. • Based on these, they: • Achieved repayment plan with HMRC for 12 months • Deferred key trade creditor payments • Renegotiated leases with landlord • Sought additional bank lending via EFG/3rd party security • Discussions with invoice funder as to possibility of increasing lending at an acceptable level of risk • Introduced 2 new possible funders • Obtained formal offers and advised on best option • Reduced debtor days

18. Six months later • All of the above was implemented…. however • Failure of large house builder led to a significant bad debt • Defaulted on landlord/HMRC payment plans • No way of replacing revenue in short term • Credit insurance withdrawn

19. Plan B - Insolvency

20. Administrations and ‘Pre-packs’ • Who can appoint? • Appointment procedure and effect • Notice of intention • Protection/moratorium • Floating chargeholder consent • Notice of appointment

21. Pre-packs (1) • A deal is negotiated and agreed prior to administration • A sale and purchase agreement is also finalised • Immediately following administration, the sale and purchase agreement is complete • Possibly common directors • Same customer and product base • No significant gap in trading • Same premises and staff • Potentially similar trading name • Liabilities remain in OldCo

22. Pre-packs (2) • Certainty for stakeholders: • Directors • Shareholders • Funders • Employees • Landlord • Creditors/suppliers • Creditor objections • Practical considerations: • Newco viability • Price • Deferred consideration • Bank facilities • VAT Registration/bonds • Warranties • Trading licences • Novation of HP agreements

23. Greater transparency • SIP 16 • Letter to creditors • Alternative options considered • Valuation of assets and price achieved • Why it is not appropriate to trade • Why no marketing • Creditor discussions • PGs given to previous funder • Is the previous funder involved with Newco

24. Pre-pack outcome • In this case: • Sold business to existing management • Maintained customer base • Preserved all 120 jobs • Bank collected out – personal guarantees not called in • Landlord kept tenant • Creditors kept customer going forward • Dividend to unsecured creditors

25. Leonard Curtis’ Approach

26. Initial Strategy • Listen and learn: • Understand business • Key drivers • Personnel • Survival • Deal with HMRC & Landlord • Key supplier negotiations • Additional funding • Debtor collections to improve cashflow • Consider alternatives: • Pre-pack • CVA • Liquidation • Practical help

27. Implementation (1) • Factoring Advisory Service • Web based and one-to-one service • Free impartial advice • New Funding lines for end users • Lead generation for all the ABL market • Manage away free • End user discussions lead to: • Possible new client introductions for accountants • Additional income streams for accountants and other introducers

28. Implementation (2) • LC Receivables • In house collections • Specialist experience in credit control, debt collection • Resources to maintain effective collection momentum • Experience of collections across all facets of industry • Director level involvement • Account management, detailed reporting capacity • Limited impact on funder resource

29. Implementation (3) • Corporate Strategies • Assist directors to • Formulate plan for turnaround • Prepare projections • Negotiate with Crown to defer PAYE/VAT/CT • Success with defeating HMRC VAT bond demands • Leonard Curtis • Administration • Other insolvency processes

30. Directors duties and employees • Companies Act 2006 • Increased duties • Disqualification • Section 216 Insolvency Act • TUPE • Oakland case

31. Summary & Questions

32. Our Unique Business Model Leonard Curtis Business Solutions Group Visibility Corporate Strategies Leonard Curtis Factoring Advisory Service CorporateStrategies Leonard Curtis Recovery Simple Debt Solutions Risk and Assurance Services Debt Advisory Funding Advice Formal Insolvency ProceduresCorporate Formal Insolvency ProceduresIndividuals FinanceAppraisal InsolvencyAvoidance FinanceRaising Formal InsolvencyProcesses Anticipating a problem Solving a problem Taking over a problem

33. Contacts • Paul Masters 07921 471000 • paul.masters@leonardcurtis.co.uk • David Butler 07860 400079 • david.butler@factoringadvisoryservice.co.uk • Ed Preedy 07714 481020 • epreedy@corporatestrategiesplc.com • Offices: • Bamfords Trust House Regent House • 85-89 Colmore Row Bath Avenue • Birmingham Wolverhampton • B3 2BB WV1 4EG