CVA Case Study

Lynn Gibson of Gibson Hewitt will always seek to save the company when many other IPs might recommend a liquidation or administration. Lynn typically utilises the Company Voluntary Arrangement (“CVA”) process as it is incredibly flexible, a characteristic which combined with Lynn’s innovative approach offers directors the chance to save a company which others might have written off.

Case-study “Washer” is a UK manufacturer of automatic train-washing-machines and world-wide exporter with a heritage dating to the Victorian era. In common with many old companies, Washer’s financial viability had been hampered by a large final salary pension scheme deficit. Funding this deficit had devoured Washer’s working capital resulting in an overwhelming purchase ledger. This had distracted the directors from running the business efficiently leading to their agreement of some lossmaking long term contracts.

Before visiting Lynn, the directors had visited two other IPs who had both suggested an administration, potentially with a pre-pack sale to a director. Lynn saw the potential to save the company via a CVA which incorporated the following features:

The MD was replaced with a turnaround specialist
The pension fund transferred to the Pension Protection Fund (“PPF”)
Washer made affordable monthly payments to the CVA based on its cashflow forecasts
An “anti-embarrassment” clause for the PPF was incorporated requiring additional contributions where profits exceeded forecasts
Some unprofitable Indian and Far-East long term contracts were renegotiated and others were terminated
Banking arrangements were renegotiated
The factory lease terms were renegotiated

The CVA was approved with fantastic results:

The Company is profitable and thriving 4½ years later with just 6 months left to go in the CVA
Only 5 redundancies occurred saving 38 jobs
The shareholders are delighted having retained control of their company
Returns to unsecured creditors exceeded those achievable via an administration