Updated: 3rd November 2021
We were appointed administrators of a profitable and cash generative restaurant group with branches in six major UK cities. Despite a £20m turnover and a history of carefully selective openings over 10 years, the group accrued £7.2m in debt to the Bank due to the effects of COVID-19 on the market and shareholder reorganisation. We were introduced at a point where the Board members were aware of a CVA as an option and the process was explained to the Board and its advisors.
An additional cash requirement in excess of £1.5m was required to fund ongoing trade until the restaurants could re-open upon easing of UK Government enforced lockdown restrictions. The CBILS provided a cash injection, however, this had been intended to cover the first lockdown – the third national lockdown to 17 May 2021 resulted in a significant additional cash requirement in the business.
It was evident from the engagement that the shareholders were not working well together, and due to the ongoing shareholder disputes, no agreement was reached to alter the capital structure of the company to allow an injection of funds from one particular shareholder to support ongoing trade.
Due to the prolonged lack of consensus from the Board, the decision was made to place the company into Administration in order to preserve some value for creditors. This was done with full visibility to the bank and its advisors.
As there was an uncertainty of when the lockdown restrictions would be lifted, and the company could recommence trade, most financial investors were not willing to fund the business on a solvent basis. It became clear that the only proceedable offers would be on an insolvent basis though an Administration.
Three offers were received on the insolvent sale basis, one of which was put forward by the incumbent management team on an unconditional basis. Following the appointment of Administrators, the sale of a substantial part of the business and assets resulted in a return to the bank of c.£2m plus any recover from the CBILS scheme, opposed to the original EOS provided to the bank and its advisors which suggested a nil return. Ultimately, the deal resulted in the continuation of the 5 main restaurants and saved 280 jobs.