Background

A secured creditor provided Solent Butchers Limited with a term loan against the company’s property, overdraft facility, sales finance agreement (invoice discounting facility), bounce back loan and asset finance. A material, unexplained reconciling error was identified between the value of the debtor ledger on the secured creditor’s systems, and that on the company’s accounting system. As a result, FRP was introduced to the company by the creditor to help understand the issue and the options available.

Action

FRP’s team was initially engaged to review the company’s 13-week cashflow forecast and underlying assumptions, assess short-term critical payments, and address potential risks in the forecast. The team was asked to comment on the main causes of the overstated ledger, and explore the options for the company. An external agent was also engaged by the creditor to carry out an independent reconciliation of the debtor ledger; the reviews by our team and the agent revealed that the sales ledger value had been materially over reported on the bank’s system, causing the facility to be significantly overpaid, meaning the company had exhausted its working capital funding.

Outcome

With the company unable to explain the reduction in the ledger value, the invoice discounting facility – the company’s historic method of funding working capital – could no longer operate. As no other working capital funding was available, FRP recommended that the business and assets be marketed for sale on an accelerated basis, alongside the ongoing debtor reconciliation exercise. FRP was appointed as Administrators, and following a seven-week marketing process the business was sold as a going concern, safeguarding 68 jobs and maximising the value of debtor realisations.