Positive Options in a Difficult Market 9 November 2011

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

The Leonard Curtis Business Solutions Group Delivering excellence nationally Locations: Birmingham Blackburn Bristol Bury London Manchester Newcastle Preston Wolverhampton

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

Introduction to Case Study

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

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

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

Plan A – Assess Viability

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

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

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 months) Direct line of communication with large debt offices

Source: Official Statistics Release July 2011

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

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

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

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

Plan B - Insolvency

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

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

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

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

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

Leonard Curtis’ Approach

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

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

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

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

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

Summary & Questions

Our Unique Business Model Leonard Curtis Business Solutions Group Corporate StrategiesLeonard CurtisVisibility Corporate Strategies Factoring Advisory Service Leonard Curtis Recovery Simple Debt Solutions Anticipating a problemSolving a problemTaking over a problem Risk and Assurance Services Debt AdvisoryFunding AdviceFormal Insolvency Procedures Corporate Formal Insolvency Procedures Individuals Finance Appraisal Insolvency Avoidance Finance Raising Formal Insolvency Processes

Contacts Paul Masters David Butler Ed Preedy Offices: Bamfords Trust HouseRegent House Colmore RowBath Avenue BirminghamWolverhampton B3 2BBWV1 4EG