Bespoke Kitchen Manufacturer
The Company was incorporated under the directorship of husband and wife and was formed to acquire the business and assets of an unconnected business which had been operating for some 20 years
Its principal activity was the design, manufacture and installation of bespoke kitchens and free-standing furniture.
Whilst the directors had previously run their own distribution business for over 8 years, they had no experience in the kitchen market and so entered into the venture in conjunction with a former employee.
The acquisition of the business took place for a consideration of £100,000 funded via a loan from the Directors, who also provided the initial working capital. The former employee was duly appointed as General Manager, assuming responsibility for design, quotes, sales and management of production and installation, supported by three joiners. The Directors in turn handled the financial, marketing and administrative aspects of the business.
The Company traded from a unit in Shaftesbury, Dorset, which was held under a five-year lease and attracted an annual rental of £10,750. With no facility in place with the Company’s bankers, Lloyds Bank plc, the Company was dependent on its own cash-flow for liquidity.
The Directors had believed that the fall in sales in the period prior to the acquisition was as a direct result of the previous owner being unable to devote the necessary time and energies to the business to maintain its profitability. Initially this appeared to be the case as throughout 2014 and into 2015, the Company appeared to benefit from the new management, with approximately 3 months’ work in the pipeline at any one time and as customers typically made payment in stages, cash-flow was manageable.
However, the profit generated from those contracts was not at the level anticipated, which was attributed to sub-optimal pricing. In addition and in spite of the Directors carrying out far more extensive marketing than had previously been undertaken, over the course of 2015 and into early 2016, the Company experienced a significant reduction in the number of enquiries received.
While orders were still coming in, these were largely for individual items of furniture, on which the profit margins were small, rather than larger, higher-end kitchens, for which demand tailed off drastically. As a result it became clear to the Directors that the financial decline of the business was not entirely due to the former owner’s personal circumstances but also to the market conditions. It is understood that a key contributory factor in this regard was the introduction of the a cheaper product look by several companies that use specialist machinery to mass produce on a national scale and at a price far below what the Company could offer with its hand-made approach.
When the business failed to achieve its usual recovery in the spring of 2016 following the Christmas slowdown, the Company began to struggle to discharge its liabilities and the Directors were concerned about its future viability.
Accordingly based on the advice of AABRS, the Company was placed into creditors’ voluntary liquidation under Section 98 of the Insolvency Act 1986.