Typical of british banks

Typical of british banksThis is absolutely natural of British banks. As curtly as you stand any triumph they want to pull the plug and stop you trading. Loretta Long was in truth angry. She is the managing director of commonalty Leisurewear Ltd (PL), and had just received a earn from the wrinkles bank requiring a significant reduction in the everywhere order of payment. This is ridiculous agreed Jimbo Juggins, the production director. conk form we had an excellent year and it looks set to continue. We had a big coiffe in from Totspur Plc just this morning. If we cant assert up the overdraft, we wont be able to fulfil that hostel. Totspur was one of several national chains of free-and-easy and sportswear stores which was placing substantial orders with PL, usually to be sold under the Park label, but in some cases under the stores own brand label. PL had been started by Loretta and Jimbo five years ago. The business is a designer and manufacturer of casual and leisure clothes aimed curiously at the younger, higher income market. Before kickoff the business both Loretta and Jimbo had been employed as senior managers with White stag Plc, a large UK clothes manufacturer. They decided to create PL after their ideas for develop a bare-assed range of clothes for younger people had been welcomed by White Hart Plc but investment capital had non been available.From the very outset, Loretta and Jimbo decided that PL would be a design and marketing led business. frequently of the forward planning was concerned with integrating the product design and reading with the sales and marketing operations of the business. The new business had taken a lot of trouble and spent a lot of money on employing a young and talented design police squad, led by Heena ibn Talal Hussein who had been employed previously as a chief designer for a leading sportswear brand. The range of clothes designed by Heena and her team was greeted with enthusiasm by the major buyers and this was converted into firm orders by the marketing team led by Loretta.PL grew slowly at first. However, sales started to make up significantly as the brand gained acceptability in the UK and as exporting markets in France and Switzer toss off were opened. Loretta and Jimbo were both surprised and delighted by the speed with which the sales of the business had grown in youthful years and by the increment base of regular customers. The order just received from Totspur was seen as particularly important. If Totspur became a regular customer, the sales of the business were likely to increase speedily over the near few years and would establish PL as a major player in the market. This, Loretta and Jimbo felt up, would build upon their victor, success evidenced in the year to 30 September 2007 by the Cash Generated from Operations (as shown on their published Cash Flow Statement) of 6,608,000. Loretta and Jimbo had both invested their life savings in the business and had al so taken out large mortgages on their several(prenominal) houses to help finance the new business. However, this provided only a relatively wasted amount of the total ordinary share capital needed. In order to raise the remaining share capital, friends, family and business contacts were climb uped. The largest shareholder of the business was Crowley Estates Ltd realise by Alan and Tim Crowley. The ii Crowley br new(prenominal)s had made large profits by land speculation over the years but were keen to diversify into other areas as their business had been particularly hard hit by the new-fangled recession. They had k outrightn Loretta for many years and were convinced she and Jimbo would make a success of the new business.PLs directors and their shareholdings were as followsLoretta LongManaging Director and Marketing Director (700,000 shares)Jimbo Juggins product Director (700,000 shares)Heena HusseinDesign Director (40,000 shares)Alan CrowleyChairman (2,000,000 shares owned together with with brother Tim through Crowley Estates)Tim CrowleyNon-executive directorIn addition to his role as production director, Jimbo tended to look after financial matters. Though the business had accounts cater who dealt with the day-to-day transactions, there was no one at PL who had any abundant financial expertise. When there was a problem, the businesss auditors were normally postulateed for advice. That said, Loretta and Jimbo had non consulted the auditors in October 2007 when they had purchased new equipment and buildings for 8,670,000, part of which had been funded by an additional bank loan.On the day the letter from the bank was received, a meeting of the board of directors was due to take situate to consider the draft financial statements for the year that had ended two months earlier. At this meeting, the letter from the bank was also distributed to board members for discussion. Jimbo Juggins began the discussion by formulaWeve just received the draft acc ounts from the auditors which seem to confirm our success. Profit has to a greater extent than doubled. I really cant see how the cash situation is so poor. I know that we spent a lot on that additional plant and that we didnt get anything from the old machines we got rid of, but most of that was cover by the bank loan. Really, the cash situation should be even bankrupt than the profit level implies because the expenses include about 2.8 million for depreciation and we dont shake off to write a cheque for that.Loretta Long, who was still angry at what she regarded as the high-handed attitude of the bank, pointed to the difficulties that the banks demands would cause The bank wants us to reduce the overdraft by half over the next six months This is crazy I try to explain that we have important orders to fulfil but the manager wasnt interested. How on earth can we find this kind on money in the time available? We are existence asked to do the impossible. some(prenominal) Jimbo an d Loretta had, forrader the meeting, take tod that the Crowley brothers would be prepared to help out by purchasing get ahead new shares in PL or by making a loan. However, it was soon made exhaust by Alan Crowley that further investment was not a possible option. Crowley Estates had been experiencing considerable problems over recent years, as a payoff of a couple of unprofitable overseas projects, and simply did not have the money to invest further in PL. Indeed, the Crowley brothers would be prepared to mete out their shares in PL to generate much-needed cash for their own ailing business. Finding a prospective buyer for the shares was not, however, a likely prospect at this point. Both Alan and Tim Crowley had been heavily involved in recent years with the problems of Crowley Estates and had taken small-minded interest in PLs affairs. The board meeting made them realise that they should have been much more attentive and now faced the prospect of being major shareholders o f two failed businesses unless things could be radically improved. PLs financial statements for the past two years are set out below on the next two pages*NoteOpening net book value of NCAs (8,600) depreciation charge for the year 2,800Closing net book value of NCAs 14,470NCA additions during the year 8,670The board of directors was not able to agree on a bureau of dealing with the financial problem faced by PL. Loretta believed that their best hope was to continue to wrangle with the bank over its demands. She felt that their was still a chance that the bank could be persuaded to change its mind once the draft financial statements for last year were made available and the bank was cognizant of the implications for PL of paying off such a large part of the overdraft in such a short period of time. Jimbo and Heena, on the other hand, were not optimistic about the prospects of changing the banks position. PL had breached its overdraft limit on several occasion over the past few year s and they knew that the patience of the bank was now wearing thin. They believed that the only real solution was for the board to look for somebody who was prepared to make a significant investment in the business. They felt that only a large injection of new funds could keep PL on track. Like Loretta, they believed that the financial statements demonstrated the success of PL over recent years and that this evidence would make the business attractive to a potential drop investor. The Crowley brothers rejected both of these views as being impractical. In addition, they were against the idea of introducing other major shareholder as this was likely to dilute their influence over the future direction of the business. The brothers believed that the board required drastic and immediate action, although they were not sure what form of action should be taken. After several hours of discussion, it was clear that the financial issue was not going to be resolved at the meeting. Instead, it was agreed that expertise from outside PL should be sought to help the business find a feasible solution to the problem. The board decided to approach BUS021 Financial Consultants, a firm which specialises in helping businesses with financial problems, and to ask the firm to analyse the financial performance and financial health of the company.