The auto paint distributor supplied paint to garages and repair facilities for respraying cars after repairs. It operated through 29 depots spread throughout the UK - each one carry a full range of stock. Over the years, profitability had declined and at the time of CMR's involvement the company was losing over £30,000 per month on a sales turnover of £18 million p.a. Cash reserves had been depleted and the directors could not see a way out of their predicament.
In looking at the company's situation, it became rapidly clear to CMR that the company's strategy of operating through so many local depots was the main cause of the financial difficulties - for not only were the fixed costs extremely high, but inventory levels were enormous because each depot carried a full stock. However, it was also very clear that the company could not take steps to remedy the problem as a going concern, because the costs of lease obligations on premises and redundancy costs for staff laid-off would have crippled it - even if there had been good cash reserves, which there were not.
The only possible way forward was to completely restructure the business through a receivership or liquidation - this would have the effect of allowing the dramatic changes to happen to bring the business back to robust profitability, whilst also preserving the owners/shareholders interest in the business.
Within an intensive two week period, CMR arranged for a new plc to be established, for 28 of the depots to be closed - leaving only one super-depot, for 0800 phone lines to be installed and for overnight freighting contracts to be arrange. CMR also arranged, in conjunction with the bank who were supportive of the plans, for Receivers to be appointed. At the end of the two week period, the Receiver's appointment was confirmed, and the new plc acquired the business at a pre-agreed price from the Receivers.
The new plc commenced trading immediately from the one super-depot. Customers now placed their orders on the 0800 phone lines, and providing these were placed by 5.00 p.m. they were delivered by 10.30 a.m. the following day - a perfectly acceptable service level for the customers. The effect on costs and asset level was dramatic - fixed costs were slashed, as were inventories. The new company was highly profitable from the outset.
This restructuring was a good example of how a business can be completely turned-around whilst preserving the owners/shareholders interests. In this example it could only be done through the use of an insolvency procedure, because this leaves the very substantial liabilities for lease and other obligations, and the cost of redundancy with the receiver/liquidator. Had the company tried to continue as it was, the consequences for the owners would have been dire, and the whole business would have been lost.
CMR works with highly reputable insolvency practitioners and other professional firms to formulate and carry-through imaginative solutions for clients.