Seven years ago, vehicle refurbishment business Perfection Alloys ran into trouble. Despite a turnover of more than £2m, the company experienced a cashflow issue which resulted in entering a CVA to rescue the business.
“We were owed massive amounts of money that we were struggling to collect,” says Fraser Dick, managing director of Perfection Alloys. “And we owed a big amount to the revenue.”
The business had expanded very rapidly, starting with its two MDs, Dick and Simon Gudgeon, and growing to 55 staff in the space of three years. “We just got so busy and so large so quickly that there was no real structure. It was naivety because neither of us had run a business before,” says Dick.
After they were made aware of the issue, they brought in an insolvency practitioner. But it left Dick with little hope. “It was brutal. The practitioner said: ‘I don’t see there’s any way you can go forwards with this business, I’m advising that we shut it’,” he says.
“You can’t actually comprehend it. Bearing in mind all the effort it takes to get the business up and running; we were working six, sometimes seven days a week that were easily 12-14 hour days. So to be told so quickly and brutally that your company isn’t a viable option, we’ll just apply to the courts to close it, it’s hard to describe.”
However, Gudgeon wanted to get a second opinion and was introduced to another insolvency practitioner. Dick was not really in the mood to speak to anyone else and having the same heartbreaking conversation.
“But I said okay, we’ve got everything to lose so let’s go see him. He came in with his team within 48 hours, did an assessment over three or four days of the business, came back and said look, this business is totally viable. I can see where it’s gone wrong.”
This new IP was very professional, but operated with empathy. “He had real concern, but not only for the business but for the mental state of myself and Simon. He could see there was real anguish.”
After receiving a more hopeful assessment from this second practitioner, the business had to make some tough decisions to stay trading. They applied to the court to enter a CVA and restructured the business.
Previously, the two MDs held three businesses together under the umbrella of Perfection Alloys. As part of the restructuring, one was closed completely and the other two were merged.
The company was advised to cut wages by a minimum of 5%, Dick and Gudgeon absorbed that cost from their own wages. Some prices were increased and the two MDs tied their houses to the business. “We had personal guarantees on the business, so that was immensely frightening,” says Dick.
“It was difficult because you’re making decisions and you know a very small decision could have a very big impact. So we just went through everything, anything that was signed off from the company. Even if it was a box of paper clips, it had to come in a purchase order to myself.”
As this was happening, five managers decided to break away and open their own businesses, taking around 10-15 staff with them. “Not only were we fighting to keep the business open, but we then had another two fights - one in Birmingham and one in Manchester with people that we’d employed and trusted. They managed to secure and get their business up and running, both of them, but that put more fire in my belly to make sure we didn’t go down.”
That exodus of staff was also helpful for the restructuring process; the business has kept around 30-40 staff since. Despite the struggles, the business managed to exit the CVA within three and a half years; a year and a half earlier than expected.
“To get out of a CVA is difficult, it takes inner strength to make the changes that are needed, but to get out early is almost unheard of,” says Dick, who is proud of the business they have built after these challenges. He says a lot of it was down to the empathy and time their second practitioner gave them.
“He wanted to know about us, what we felt and thought, and if we had the strength for it. And that is really important. To look at the individuals as well as the black and white figures. To look at the people who are running it or could run it and take it over.”
The business is still strong and profits have doubled since the CVA. Even after closing for three months due to COVID-19, Dick still expects the business to make a profit at the end of its financial year thanks to cash reserves built up over the past seven years.
All of this wouldn’t have happened without the resolve to change the structure of the business and to really look deep into the company’s finances. For Perfection Alloys, it was the recognition of their insolvency practitioner that they were willing to fight that spurred them on, and eventually ensured a successful business.
“There’s nothing else like it that I’ve witnessed or experienced in life that’s needed as much emotional strength,” says Dick. “I do feel proud that we managed to save jobs. We made a mistake or two, but I really do wake up everyday thankful because it could have been so different.”
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