80 construction industry jobs saved by intervention of TAEFL and UK EXIM
Trade & Export Finance Ltd (TAEFL) has put in place a corporate reconstruction which has enabled a specialist building trades company to avoid Administration and a ‘pre-pack’ insolvency, with the job losses and non-payment of unsecured creditors which that route would have involved.
CRT is a UK company which has focussed on the supply and installation of interior panelling (drylining industry) to prime contractors. To release working capital before these companies settle their invoices, CRT had negotiated an invoice discounting agreement with an independent factoring company which had secured the debt through a first charge over the business.
But extended trading terms within the construction sector saw mounting pressure on CRT’s cash flow. Credit terms which had been planned into the company’s cash forecasts at a conservative 60 days stretched over time into 90+ days, with the result that all of the payments made by customers were being absorbed in servicing the debt to the finance company. As Cezar Suciu, the company’s Commercial Director, explained, “Liquidity was severely constrained and there was no prospect of making the business operate smoothly, let alone make it grow.”
Matters had become sufficiently serious at the beginning of November 2014 for the finance company to consider receivership of its client’s business to protect its interests.
The invoice discounter’s preferred route was a ‘pre-pack’ insolvency where a ‘phoenix’ company would take over the company’s contracts and appoint its own management. While the finance company was set to protect its position, the losers would have been CRT’s specialist staff along with sub-contractors and suppliers who would not have been paid as unsecured creditors.
TAEFL analysed requirements and developed a strategy
TAEFL became involved as advisors to the company; negotiating with the invoice discounter while completing an in-depth appraisal of the business. It conceived a reconstruction with an outcome far removed from the proposed pre-pack.
In conjunction with its associate – the finance specialist UK EXIM – the TAEFL team developed and funded a solution which allows the company to continue operating under its present management. Under the scheme, suppliers would be paid and no jobs lost. As part of the deal, the finance company has given up its first charge over its former client on the firm assurance that it will be repaid out of working capital by the summer of 2015.
Mark Runiewicz, CEO of Trade & Export Finance Ltd, commented on the reconstruction: “Negotiations with the factoring company to accept the deal were tough. But we were able to convince its directors that what we were prepared to do was in the interests of all parties. The threat of large scale unemployment and disaffected creditors has been avoided.”
The funding put in place is allowing the CRT management to concentrate on developing related lines of business which will reduce its dependency on a small number of large customers. A move in that direction has been to set up a company refurbishing public sector accommodation, while planned diversification into the facilities management arena will provide further opportunities for developing the business. The company has a substantial order book stretching a year ahead and is on course to double its turnover in 2015.
Relationships are at the heart of the solution
How much of the turnaround has been the result of a new ‘mindset’ being brought to bear on CRT’s issues? Cezar Suciu took a considered view of the situation.“The relationship we have established with TAEFL is less restrictive than with a factoring company. It is also less expensive to fund the company through UK EXIM than previously, so we already have the liquidity we require.
More important, though, was the fact that the invoice discounter did not understand the construction sector, as Cezar went on to explain. “Having a number of construction clients on its books, TAEFL knows how our type of company operates; coping with the unplanned and unavoidable delays, for example, in having the client’s surveyor signing off a stage of the work so that payment can be made.
“If we have a problem, we can talk to Mark Runiewicz and his team. Because there is trust on both sides, we can manage and reduce the level of debt with UK EXIM. As a result, the original finance company will be paid in full by next Summer and we end up with a financially solid business. We have been given a lifeline and are doing our utmost to make sure that we honour the deal.”