Overview:
Featherstone Leigh Residential was a multi-site estate agency operating primarily across South and South West London. The business successfully focused on the higher end of the residential property market, until trading conditions began to deteriorate following COVID-19 and a shift in property market conditions.
When the pressure started mounting, the founding director began injecting personal funds into the business to try and keep it afloat. Over time, those contributions totalled approximately £1.2 million via a director’s loan account. Despite this significant personal investment, the business was unable to recover and became insolvent.
With the company no longer viable and the financial situation of the director playing a big factor, professional advice was sought. Exigen Group was introduced by Barnes Roffe, the company’s accountants. David Kemp and Richard Hunt from Exigen Group were appointed as joint Administrators, and a pre-pack sale of the business and assets was completed for £45,000 to members of the existing management team, who are continuing to trade under the Featherstone Leigh name.
Financial Challenges
The company’s difficulties developed over time, but as COVID had a big effect on market conditions, the business saw a big dip in the London residential property sector. As trading became more difficult, the director chose to use his personal money to support the business.
While using funds via a director’s loan account is not uncommon, it did not address the underlying trading issues. The financial position continued to get worse, and by the time the company entered Administration, the director was by far the largest creditor, owed approximately £1.2 million. HMRC was also owed around £120,000, but there were no funds available to make distributions to creditors, meaning the director’s personal investment was lost entirely.
Exigen’s Appointment and Outcome
Exigen Group was introduced via Barnes Roffe Accountants and was appointed to place the company into Administration. A pre-pack sale of the business and its assets was agreed prior to the appointment and completed to the existing management team. This preserved the trading name and the ongoing property sale opportunities, and allowed the business to continue under new ownership without the weight of the company’s historic liabilities.
Some employees were made redundant as a result of the Administration, but a number of others transferred to the new entity under TUPE (Transfer of Undertakings and Protection of Employment), meaning their contracts, accrued holiday pay and employment rights transferred across to the new business.
Key Outcomes Include:
- A pre-pack sale of the business and assets was completed for £45,000.
- The Featherstone Leigh brand and trading activity has continued under new ownership.
- Several employees transferred to the new entity under TUPE, preserving their employment.
- No distributions were made to creditors, including HMRC, as realisations were insufficient.
- The founding director lost his personal investment of approximately £1.2 million.
Administrator Comment
David Kemp of Exigen Group said:
“Director loan accounts work in two ways, a director can owe the company money, and like this situation, the director has been funding the company and is owed money by it. Either way, when a company enters an insolvency process, that money is usually at risk. Many directors and investors put personal funds into a business believing it will be recoverable, the difficulty of this is that it often isn’t.
In this case, the director invested over a million pounds trying to sustain the business, and that investment could not be returned. Wanting to keep a business afloat which you’ve invested time, energy and money into is natural, but professional advice should be taken early as soon as there’s financial troubles. Speaking to your accountant about your options before committing personal funds can be the difference between finding an affordable solution and having to enter into administration and risk losing the personal investment.”