TMP Case Summary – London Teashop

Our client is a London based teashop/cafe which offers a wide range of speciality tea. They have three cafes selling homemade food, and these stores are supported by online sales of tea through their website.

Factors leading to business distress

- The company took on a lease to open its third cafe in expensive premises in the west end.

- This outlet did not meet the forecasted sales and the director started using the revenue from the original two successful stores to keep the new store going.

- This became a drain on cashflow and its poor performance was threatening the two other healthy stores and the employment of the ten staff who worked there.

- Having attempted to relaunch the third store three times, management came to the conclusion that the footfall and surrounding area would never be able to support the level of rent demanded for this site.

- In the absence of profitability in their shop, the director contacted TMP as the situation was not sustainable.

- The company was clearly insolvent on both a balance sheet and cashflow basis.

Issues

- The three outlets were run through one company, so the director didn’t have the option to liquidate the underperforming store only.

- The director wanted to continue with the original two stores as they remained profitable, without the other store, the core business was viable.

- Liquidating the company, the leases would terminate for all the stores, so there was uncertainty about whether a new lease would be given.

Outcome

- The company went into a Creditors Voluntary Liquidation (CVL), terminating the leases on all outlets.

- New agreements were negotiated for the two healthy stores so they could continue to use the existing locations.

- The assets of the company were valued by an independent third party for them to be purchased by the new company.

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