With Richard gone I appointed Tim as MD, we started the hunt for a finance director and commenced the process of producing a new business plan for the next twelve months. However, we quickly discovered that, such was the mess in the accounting systems, it was not possible to establish the true working capital position. Our auditors hired us the services of an experienced accountant who quickly set about the process of investigating the current state of the company’s books. The management accounts transpired to not be worth the paper they had been printed on deemed more like a work of fiction. Worse, the VAT was overdue and the VAT accounts had not been reconciled for months; indeed it looked as if they never could be. Whatever vestiges of empathy I had for Richard quickly evaporated.
With a twelve month plan completed, Tim and I presented this to our finance company to plead for additional time. We then visited every one of our key suppliers to explain the current situation and to present our plans. Luckily, we gained the full support of everyone. Tim proceeded to do a remarkable job as the new MD, working tirelessly to rally the whole team, whilst I started the process of seeking a new finance director. With the aid of 3i, we met and appointed a very experienced FD who quickly set about bringing the company’s books up to the required standard. With the correct information guiding us and the whole team working effectively, sales and margins slowly started to improve.
By mid year (our second) we were trading profitably but cash remained as tight as ever. Further close examination revealed that our finance company were slowly but surely reeling in their loan by reducing their advances against our invoices. It was galling in an extreme to realise that, had we not suffered the actions of the vendor and his illicit cash strip, we would have been in a healthy cash position with no liquidity concerns. However, with Offhand (the vendor) again doing a disappearing act at my latest attempt to arrange a dispute resolution meeting, it was clear that we were running out of time before we had to go to court. Although we were sure of the odds of winning on our main claim (the cash strip), there was unfortunately (due to the poor state of the books before our purchase) a degree of uncertainty over the smaller claim. With the prospect of enormous legal bills even if we won the main claim, it was clear that drastic action was needed. My first foray into business ownership looked like it could hit the rocks.
With the business trading in two entirely separate markets, with two different product ranges, it was apparent that potentially we could package one half of the business and sell this to a competitor. One of the product ranges had lower margins and poorer quality debtors but had potentially a higher strategic value to competition. With a range of cautious estimates for a sale price, it became clear that the rump business, operating with lower overheads, could prosper even without the reducing invoice discounting facility.
I initiated a series of discrete discussions with our competition for the more saleable business. Out of the calls I made, two produced meetings that showed interest and I progressed these. Further discussions led me to believe that we could achieve a price at the upper end of our estimates. Nevertheless, whilst we were now trading profitably, we were far from being out of the woods in terms of liquidity and in this uncertain situation we lacked the cash to pursue the legal action. I drove the long way back home that week convinced we could make the plan work.
Given the somewhat vague legal definition of insolvency, I wanted to be sure that we were on safe ground selling off company assets and sought specialist advice from one of the big four accountancy firms. It transpired that to be certain that we were seen to be acting in the best interests of all the creditors, we needed to advise them of our plans and gain their agreement. As I was returning from that meeting I received a call from one of the two interested parties advising me that they were withdrawing. This robbed me of the opportunity to have two parties bidding against each other but all you need is one willing purchaser; so, press on. When I got back to the office I found that sales in the previous month had failed to reach our projection. Immediately, the finance company reduced advances against our invoices still further.
Good news came at last in the form of an encouraging offer for the part of the business we had put up for sale. We only now needed to gain the agreement of our creditors to a new overall plan, realise the sale at the agreed sum and we were home and dry. With the sale achieved, we would be able to pay off all overdue creditors and finance court proceedings against Offhand. We carefully revised our rolling twelve month business plan and Tim & I started the arduous task of again travelling the country to meet with our creditors. We presented the full story including a fall back position (if the sale failed or we did not receive the full backing of all creditors) of having to place the business into administration. In the event, we achieved 100% acceptance of our plan. This proved to be of no avail.
The hammer blow came several days later, when I received a call from the CEO of the competitor that had made the offer; he had heard of the precarious state of the overall business and was withdrawing his offer. It subsequently transpired that the credit control manager of our largest supplier (who had pledged full support to me face to face) had revealed our situation to our competitor. We discussed the situation as a board but there was no way out. With the working capital financing now almost depleted (and soon to disappear completely) and no way of raising further finance to continue trading and fight our legal case, we had run out of road. That same day I appointed the accountancy firm I had met as administrators and arranged to meet them at the office the following morning.
The next day I was relieved of my duties as an employee and director. Tim was kept on for a few weeks more whilst the administrators tried to sell the business as a going concern. The part of the business we had originally received a healthy offer for went as an asset sale for a fraction of that which it was worth immediately prior to the administration. I lost a great deal of money and the creditors never received a penny. Our wonderful administrators then managed to string the process out for ten long years taking all of the money they raised in their own fees.
Against the backdrop of this sad and frustrating failure, I was by this time also heavily committed in what was to become an even longer running and equally challenging saga in the other 3i investment where I was now chairman and part owner. Whilst up in Newcastle, the Metal spinners investment was also becoming more challenging by the day. Was it all going to end in a disaster?