TMP Case Summary – Online Advertising Company

Our client developed the technology to allow online advertisers to win consumer engagement and conversion by delivering what consumers crave most in their interactions with brands. This gives advertisers the power to talk to their audiences as individuals rather than generic media targets. The company has a direct sales team in the UK covering Europe, another team focussing on the US, and it is currently signing partnerships to help grow the customer base more rapidly. These partnerships are producing profitable work and repeat business and there is the potential for new investment.

Factors leading to business distress

- The directors changed their target market so they could concentrate on acquiring campaign work.

- As a result the company had to make staff redundant and re-recruit almost 70% of the team due to the skill set requirements changing.

- The predicted forecasts for the company’s partnership with one search engine fell well short of the required revenue in the previous year.

- The combination of the change, and overinvestment in infrastructure against this opportunity, lead the company into its current cashflow difficulties.

Issues

- The company had a large trade creditor making up 65% of creditors by value – if a CVA was to be approved, that creditor would have to support the proposal.

- Negotiations had already been in place with the large creditor to agree repayment terms. The creditor demanded a specific repayment profile, without which it would have issued a winding up petition.

- Three of the existing investors were ready to invest a further £1.2m, but only if a formal deferment could be agreed with the company’s historic creditors.

Outcome

- TMP advised on the restructuring of the company and the directors decided to propose a Company Voluntary Arrangement (CVA) to its creditors.

- A two year CVA was approved with unsecured creditors expecting full repayment – a dividend of 100%.

- It was proposed to pay the largest creditor an amount equating to 25% of its debt, immediately on the approval of the CVA. Although this is unusual in a CVA, this payment was not being made to put the large creditor in better position than other creditors. It was made with a view to obtaining a successful approval of the voluntary arrangement, to secure further funding from existing investors, and thereby to maximise the interests of all creditors.

- Without this support, the CVA would not have been approved and the Company would have entered Administration or Liquidation. In either scenario unsecured creditors would have been unlikely to receive any return from the Company.

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