Trade and commercial printer RCS has entered into a Company Voluntary Arrangement (CVA), securing around 70 jobs, after its creditors approved the proposal in a meeting last Wednesday (6 August).
The firm needed 75% approval of creditors by value to be able to enter the CVA. According to managing director Michael Todd, 95% of creditors by value voted and of those, 99% gave their approval.
30 staff have been made redundant during the past few months, reducing the firm’s headcount from a 2013 average of around 100 to 70.
“The debts arose through difficult trading in the recession, an unwise capital investment and, most critically, the extremely disappointing stance of our bankers in 2013,” said Todd.
“The cashflow they promised us through a new invoice discounting arrangement was not forthcoming and this resulted in us falling behind with payments to creditors. As soon as those debts fell beyond their credit terms, they became payable in full meaning that the problem of the cashflow held back from the bank was massively compounded.
“The situation was made worse by our bank then describing us as a distressed borrower, despite them being the very people causing the distress, and foisting a notorious accountancy firm on to us. The first thing they did, before even looking at our books, was tell us to pre-pack the business and, in their words, 'walk away from all our debts'.”
Business recovery firm KSA Group has been appointed to the business, with Eric Walls from the group appointed as the insolvency practitioner.
The firm’s debts were frozen in March and the first repayment of the old debt under the new schedule is due later this month.
The creditors list totals £5,604,371.69, which includes £2,010,152 owed to secured creditors, £2,298,982 to unsecured creditors and £1,123,320 to contingent creditors.
The company is offering to pay 52p in the pound to unsecured creditors over five years, which will equate to £1,032,000 of £2,298,982 unsecured debt being paid back.
The schedule of contributions equates to £96,000 in the first 12 months, £144,000 in year two, £180,000 in year three, £264,000 in year four and £348,000 in year five. Of the unsecured creditors, a total of £626,740 is owed to HMRC and £359,198.71 is owed to RCS Retirement Benefit Trust.
“We have been in business for 30 years and have always taken a huge pride in being honest and sincere, but the unrelenting pressure of the 'pincer' operation between the bank and their chosen accountants was almost insurmountable and nearly broke us,” said Todd.
“The only thing that sustained us was the unwavering support of our employees and suppliers, which has been both encouraging and humbling in equal measure.”
As part of the repayment strategy, the firm may be able to make additional CVA contributions through the repayment of wholly owned subsidiary company Snap's debtor balance.
If Snap, an established business that RCS purchased in 2004, makes profits and has cash reserves then an agreed amount will be paid to RCS and that amount will be made available to the creditors in the CVA.
Snap is behind personalised gifting site www.snapajack.com.
“The building that Snap owns is valued at about £750,000. We’ve put it on the market and owe the mortgage company just over £200,000 so that’s a substantial amount of money that will come back into RCS and be used for the benefit of the creditors,” said Todd.
The business is also potentially looking at entering into a joint venture with an Australian-owned trade printer, which is interested in setting up an operation in the UK.
The plan would be for RCS to become a 50% owner of a new company in partnership with the Australian company, which would pay RCS rent for using the premises and plant and machinery hire costs, along with a consideration for accessing RCS’s customer database. The directors believe that this would also increase the level of CVA contributions.
“The thought of leaving our suppliers high and dry was something that we simply could not countenance and fortunately, with the help of KSA, we have found a solution that gives us the opportunity to make things right with them,” said Todd.
“A CVA is not something anyone would choose and through the process many painful decisions have had to be taken. We’ve gone through the business and looked at what wasn’t making money and what we could sacrifice.
“We’ve sold some equipment but we’re managing to produce everything that we’ve produced before. There are elements that we now have to outsource although most things we still continue to do in-house."
The firm, which was established in 1982, is forecasting sales of around £6.2m in the first 12 months of the CVA period.