RSM Tenon has blamed a 10% drop in its revenue - of £9.8m to £88.4m - on difficult market conditions in audit, tax and advisory (ATA), lower new business wins due to the introduction of the Retail Distribution Review (RDR) for financial management and continued downward pressure on revenues in the insolvency and restructuring market.

In the latest interim results for the six months to 31 December 2012, the firm also revealed it had to set aside £1.9m for professional indemnity (PI) expenses which related to its financial management business.

The PI costs arose from the firm's remedial action, as a result of a Financial Services Authority agreement - which RSM Tenon says is indemnifiable under its PI policy.

However, a dispute has arisen among the firm's insurers, who currently disagree as to the extent to which the sums being claimed are covered by the policy. The insurers, according to RSM Tenon, also disagree between themselves as to how the liability should be shared.

The firm's unaudited results also showed a £4m reduction resulting from the disposal and discontinuation of certain business services.

The firm has experienced significant difficulties for the last two years, and once again revealed that its headcount has continued to drop - RSM Tenon had on average 2,666 employees for the six months to 31 December 2012 compared with the same period in the previous year.

The firm also admitted that in its turnaround and corporate recovery service lines, internal restructuring and changes in senior personnel also resulted in a 21% revenue drop.

While it renegotiated its terms with lenders Lloyds in October 2012, agreeing facilities of £93m, the firm admitted that reduction in cost and headcount have now resulted in a 'smaller business' than six months ago.

At the time of announcing its new facilities, RSM Tenon appeared confident, with CEO Chris Merry saying that the 'the slight increase in the facilities - up from £88m - is a mark of confidence that the bank has in the business. I think we have got the right level of headroom within which to operate going forward - and there's been absolutely no challenge from the bank as to whether this continues to be a viable business'.

Today however the firm revealed that it would have to re-enter discussions with its lenders to reset terms of covenants, which last year, were' tightly drawn,'with only a relatively small amount of headroom against potential reduction in revenue.'

'The covenants and other terms of the facility tighten over time, particularly in the second half of the 2014 financial year, and were set on the basis of a larger business than we have now. Accordingly, the group has entered into discussions with Lloyds to reset the terms of the facility: without such a facility reset, there is significant risk of a facility breach in the forthcoming 12-month period. Whilst to date Lloyds has not agreed to this reset, we remain in positive dialogue with the bank and Lloyds has confirmed that it continues to be supportive of the continuation of the group as a going concern and the directors of the group have prepared the interim accounts on this basis,' RSM Tenon said.

Going forward, it has also revised its service lines - concentrating on audit, accounts and outsourcing, tax, transactions and restructuring, risk advisory and financial management.

In addition, the firm intends to cut costs further by facilitating remote working and job sharing.

The firm has, however, announced it has returned to underlying EBITDA profitability, having been in a loss-making position for the same period in 2012, although this was achieved this by a continuation of a cost-cutting strategy.

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