Cash Flow Problems

Creditor Pressure Leads to Liquidation

Case Study: Creditor Pressure leads to Recruitment Agency’s Liquidation

This case study looks at how the loss of a major contract by Birmingham based recruitment agency Temp Staff led to intense creditor pressure, resulting in the company’s liquidation. The problem happened very quickly and by the time of our involvement there was no alternative to liquidation. We worked hard to ensure the liquidation was orderly. Our preference is  help businesses avoid liquidation and recover.

The Details of this Case – Initial Success

Temp Staff Limited commenced trading on 4 October 1993 as an employment agency mainly supplying temporary staff. They specialised in warehousing and industrial staff to the logistics industry, as well as some administrative staff.

The business was funded by an invoice finance facility, which it used right up to its liquidation in 2015.

The main purpose of this facility was to support the payroll. The payroll required between 300 and 400 temporary workers to be paid weekly. Whilst the temporary workers had to be paid on time, Temp Staff’s clients used credit terms ranging from 30 to 75 days to pay them. This could easily have lead to significant cash flow issues without the factoring facility.

From 1993 to mid 2009, Temp Staff enjoyed steady growth and traded profitably. However, the business started to suffer as the recession began to bite. This was mainly due to the decline of its traditional industrial sector, which it had not diversified from over the years. As a result turnover started to fall, ultimately halving from £6m to £3m during the period 2009 to early 2011.

The Businesses Enters a Company Voluntary Liquidation

During 2010, a Director sold his domestic property in order to realise equity and introduce money into the business in order to help during this difficult period of time. This was only partially successful, and did not fully address the business’s underlying problems. In October 2011 the business entered into a Company Voluntary Arrangement (“CVA”).  The arrangement was for 18 months and the company successfully completed the Arrangement in May 2013.

Business Picks Up, But The Company is Over-Reliant on One Contract

Throughout this period Temp Staff started to see growth with one of its main customers, a renowned logistics company, who offered them a master vendor contract. The demand for temporary drivers grew sharply, with numbers growing from c.50 drivers per week to c.180 per week in 2013. Temp Staff also supplied staff to the customer’s North West division.

For a while things continued to improve as order levels from the main customer remained high. As a result, more and more manpower was needed in order to fully service the contract. However, as the size of the contract grew (growth which was not matched in other contracts in order to balance risk) the customer reviewed its contract pricing policies and in early 2013 implemented a price cut of 30% across the board.  This immediately impacted on Temp Staff’s margins, creating new cash flow problems and creditor pressure.

The position deteriorated further in April 2013, when the North West contract was withdrawn. Exactly 12 months later, the Midlands’ contract was also cancelled, which effectively ended Temp Staff’s income stream.

Such were the scale of the problems that the Directors concluded that there was no alternative to liquidation. Instructions were given to us to assist the Directors in that process.

We worked to Effect an Orderly Winding Down

By working closely with the Directors, the customer concerned and the major funders to the business, we were able to work out Temp Staff’s contract notice period and avoid potentially significant breach of contract claims. This resulted in a significantly better outcome for both the secured and unsecured creditors.

Our Work Was Appreciated By The Directors of the Company

One of the directors of Temp Staff had this to say about our work:

“Through the expertise of Poppleton & Appleby we have achieved a much better outcome for all parties concerned than first envisaged.  P&A provided consistent advice throughout the process.”

If Your Business is Faced With Creditor Pressure, We Can Help

In this instance, when called in, we found the problems faced by Temp Staff were insurmountable. There was no cash flow to talk of and significant creditor pressure. We were pleased to be able to achieve the best possible result under the circumstances.

In hindsight, perhaps, it might seem easy to spot that a successful business, such as Temp Staff, is in a risky position due to over reliance on one contract. Work can then begin to improve things in order to remove the prospect of liquidation and winding up. However, we can only help if we are contacted.

At Business Recovery Specialists, our aim is always to help businesses in difficulties to recover and avoid liquidation. Whether the problem is creditor pressure, cash flow problems, late payments or funding and finance issues, the earlier we are involved the better.

If your business is in difficulty, Contact us on 0333 222 8065 for a free initial chat.