Case Study: Project Varnish - Managed wind-down using administration
Armstrong Watson were instructed to assist with the closure of a double glazing business following the settlement of a dispute. The business had been assessing its options due to the nature of the dispute, and was looking at rebranding to move forward. The way forward, including its potential downsides, had been discussed with employees and sales consultants and, following this meeting, many of the self-employed sales consultants took the decision to leave the business. With little opportunity to win any new work in the short term, Armstrong Watson were engaged to look at whether the business could be rescued.
At the same time, the company had encountered difficulties with one of its finance providers which had meant that the anticipated cashflow was not being released as usual. This was partly due to the ongoing dispute and the subsequent settlement, as the finance provider was concerned about potential refunds due to customers in the event that the business did close down.
The lack of cash available meant that the business became insolvent on a cash flow basis relatively quickly. Without any means to raise additional finance, the directors agreed that their only option was to move the company to closure. There were two options available, both of which would need to be instigated by the directors as there was no secured creditor in this matter – Creditors’ Voluntary Liquidation or an Administration.
The business operated across a number of units nationwide and had a small amount of work in progress (installations of double glazing) that were ongoing. The directors had concerns about the assets at the various distribution centres and satellite offices being at risk, as well as the potential for the financial position to worsen with no ability to improve it should they continue to trade the business whilst it was placed into Liquidation. Accordingly, they took the decision to place the company into Administration, with the hope that the Administrators would be able to complete any work in progress and reduce the liability to the finance providers.
Unfortunately, it became evident relatively quickly that the inability to pay the subcontractors upfront and the lack of warranties available meant that any ongoing installations would need to cease. However, the Joint Administrators were able to work with the various consumer finance providers to ensure that their liabilities were minimised and that customers’ needs were met as far as possible. In addition, the Joint Administrators were able to manage the redundancy process for the workforce who were still employed, ensuring that their claims for redundancy were managed. Finally, the Joint Administrators, in conjunction with their agents and legal advisors, were able to manage the exit from the various sites as well as securing the sale of the order book to a third party purchaser.
The Administration process ensured that the company’s closure was managed and that liabilities were minimised (such as the potential claims from the consumer finance providers) whilst also ensuring that all asset realisations were maximised in a controlled manner.
