Children’s furniture business insolvency under investigation

Children’s furniture supplier The Children’s Furniture Company suffered financial difficulties during the Covid-19 pandemic as well as challenges arising from Brexit and the cost-of-living crisis in the build up to its administration.

Paul Ellison and David Taylor, both of KRE Corporate Recovery Limited, were appointed as joint administrators of Caphan Trading Limited, trading as The Children’s Furniture Company, on 8 August 2023.

Detailed in newly filed documents on Companies House, the business began suffering financial difficulties during the Covid pandemic, where the business was forced to cease to trade for much of the that period.

After lockdown restrictions were removed, the company recommenced trading but suffered from a combination of Brext and cost-of-living related challenges that impacted the wider industry, including supply chain problems and reduced customer demand.

Creditor pressure mounted and the company was in default in regards to repayment of its loan with FSE and KRE Corporate Recovery were instructed to advise FSE a repayment proposal plan put forward by the company’s advisors Bell & Company.

During this period, the majority of assets and business was sold to a connected company, TCFC Retail Limited, on 30 May 2023. This resulted in no funds being available to liquidate the company.

FSE asked KRE if they would accept the appointment of administrators to investigate the events, which was agreed to. “Our investigations are ongoing and it would not assist recoveries to go into detail at this early stage,” a short statement said.

Following the appointment, administrators contacted the director of the company over a number of concerns that the secured creditor had in respect of what had happened to the company’s assets and to obtain the company’s books and records.

This was granted and showed that the sale of the company assets to TCFC Retail Limited valued £40,230. This is an associated company due to its common ownership.

“This raised a number of concerns as it was apparent that the rules governing sales of a business and assets from an insolvent company had not been followed, specifically that the assets had not been marketed and no independent valuations had been obtained over the company assets, the secured creditors had not been notified of the sale or released the security they hold over the company’s IP and the sale proceeds were no longer in the company bank account.” administrators said.

“It was discovered that the sale consideration paid by TCFC was monies from the sale of the stock that had been sold to TCFC and that when the sales funds were paid into the company’s account, the monies were utilised to pay staff wages and ongoing trading costs. Investigations into the matter are currently ongoing.”

Following this discovery, administrators contacted the company bank to freeze its accounts while investigations continued.

As for creditors, secured claims included the HSBC, owed £150,000, and FSE, owed £300,000 under a floating charge, while preferential creditor, the HMRC, is owed £3,300. Shareholders are owed £690,000, resulting in a total deficiency of £1.1m.

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