The insolvency challenge
Nine months prior to Opus becoming involved, the road haulage company’s bank had commissioned an Independent Insolvency Review which concluded that the business was unviable and that there was no possibility of any recovery for the owners. These conclusions were rejected; instead the Company’s unencumbered freehold was used to negotiate facilities with two new funders, which eased the immediate cash strain and eliminated the pressure from the original bankers. However, nothing was done to address the underlying trading issues.
As pressure from HMRC mounted, the owners of the road haulage business consulted two insolvency firms, both of which recommended Administration. Unwilling to accept this as a fait accompli for their client, the Company’s accountants asked Opus to review this advice. We concluded that the business should be of interest to competitors as a going concern ‘bolt on’ acquisition to create greater economies of scale.
The Company accepted this proposed course of action and instructed Opus to carry out a consensual sale exercise outside any formal insolvency procedure. A teaser document was distributed and generated interest from 10 potential purchasers. Within two months, a share sale to a larger haulage company with the necessary funding to support the increased working capital requirement had been concluded.
Shareholder engagement
During the sale process, Opus worked with the owners to manage the expectations of HMRC and the two funders, most crucially the provider of the invoice discounting facility.
Outcome
- The business was saved and jobs were preserved
- All creditors were paid in full
- The owners received a significant payment for their shares
- The owners were released from their personal guarantees to the funders
- The owners were retained on a short term consultancy basis
- The incumbent invoice discounter continues to provide facilities
Conclusion
Choosing the Advisory route for this assignment produced a very significantly better outcome than had been envisaged by either of the two insolvency firms previously consulted, which had recommended that the Company should go into Administration; by contrast, the advice from Opus ensured that all creditors were paid in full and not only avoided any call on their personal guarantees, but also generated a substantial return for the shareholders.
It demonstrates the beneficial effects of addressing financial and commercial issues by using restructuring and M&A expertise. Most of all, this approach avoids the use of formal insolvency appointments when not absolutely necessary, which so often materially damages the value of already-distressed businesses.
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