Author Archives: wilsonfield

What, if any, legislative progressions do you see for Corporate Insolvency in 2012?

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The insolvency industry has been under pressure for some time regarding pre-packs – the practice of agreeing in advance of administration the sale of a troubled company’s business or assets – often to a connected party.

One of the main objectives with pre-packs is to rescue businesses and equally importantly preserve jobs – both of paramount importance particularly in the current economic climate.

However, unsecured creditors often see what they perceive to be a sale of the assets taking place without creditor knowledge for a fraction of the original worth. They understandably feel that it would be much more transparent if the assets were offered to the creditors instead of what is often seen as an underhand sale “cheap” to the directors or previous owners thus leaving creditors with little or no dividend.

In reality, this often isn’t a practical option.  Some businesses have few tangible assets but have significant goodwill, which can simply evaporate if word gets out – the business collapses and takes the jobs with it. In other cases the assets are specialist or perishable and only have a limited appeal to purchasers. There are instances too where the cost of moving heavy plant exceeds its value.

In a previous existence I owned a cleaning business and was an unsecured creditor when a hotel which I cleaned went through a pre-pack. Whilst it did not bring my business down it was a severe body blow – the impact on cash flow and profit. However, what many creditors initially overlook is the loss of turnover moving forward. In my case I was more than happy to work for the new company (on a pro forma basis!) rather than lose the future business on top of the bad debt I had sustained. And there were 18 part time jobs at risk at that location.

Next year may see some changes in legislation. It is proposed that administrators be required to give creditors three days’ notice of the pre-pack. The risk is that notification of creditors will increase the likelihood of customers cancelling contracts, staff leaving and suppliers withholding their goods – effectively many businesses would vanish before a sale takes place. A change in legislation looks likely but a balance needs to be reached or we could end up throwing the baby out with the bathwater.

For free confidential advice, please do not hesitate to contact Wilson Field on 0800 458 3320

Cash is king

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The old adage ‘cash is king’ has never been so relevant.

The recent financial rally in Europe and a whisper of optimism over the state of the banks has certainly substantiated this phrase – but a simple case of semantics dictates that these three words tell a very different story, with Insolvency Service figures painting a bleaker picture for SMEs up and down the country.

Despite these figures, the importance of SMEs cannot be underestimated. They now account for 99.9 per cent of all enterprises.

They also accounted for more than half of employment (59.1 per cent) and almost half of turnover (48.6 per cent) in the UK private sector, at the start of 2010, according to statistics issued by the Department for Business Innovation and Skills. So it stands to reason that the growth which our economy desperately needs is reliant on the wellbeing of SMEs.

Each business which has to cease trading will have its own reasons, but whatever the underlying cause, the crunch comes when a business grinds to a halt because of a lack of cash.

Some will have been unfortunate and hit by unforeseen circumstances – the extended wintry weather last year is one such example. But many of these examples will, unfortunately, have been down to poor financial management, and in particular cash flow. In the past I have met many experienced business owners who actually didn’t know the difference between cash flow and profit.

I have seen directors pop champagne bottles when they had won a contract which they thought would cement the future of their business. In fact the same contract has caused the demise of the business simply because it didn’t have sufficient cash to see the contract through.

This attitude is understandable considering the past stability of the economy and availability of funds through banks. The bank manager would have been the first port of call when a business was in need of a financial boost. But, despite a few public floggings from the Government, accessing money through the banks is proving to be very difficult for many SMEs, with scores of bank managers finding their hands tied.

But as disheartening as this can be, there are still options.

The Asset Based Lending (ABL) sector is reporting booming business. Using invoice finance (factoring or invoice discounting) can certainly fund cash flow in many cases, particularly for expanding businesses. Raising cash against unencumbered plant and equipment may be an alternative way to plug the funding gap.

There will be occasions when the ABL sector cannot help. At that stage, it is an easy option to give up and ‘throw in the towel’ – but that has to be a last resort after the amount of effort involved in building up a business to start with.

Another option may be to try attracting private investors. But if a company’s balance sheet is weak or overburdened with historical debt they are likely to be reluctant to pump money into what they think may be a lost cause. It is often in these situations that it may be essential to restructure the business to make the deal attractive to investors.

Many entrepreneurs are looking at every option to buy time or help them to restructure. One major problem, however, is that many business owners have a limited knowledge of what is available and exactly how it could work for them.

For a business which is desperately short of cash flow, the worst thing to do is…nothing. Taking independent professional advice gives your company more options, gives a better chance of preserving jobs and a better chance of survival and potentially a better outcome for your suppliers, too.

Contact us for free confidential advice on 0800 458 3320 or visit our Wilson Field website.

The positive side of the insolvency

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Unless you have chosen an insolvency-related career or you have been unfortunate enough to have experienced severe financial problems in the past, there is a good chance that you will have limited knowledge of what services are available from an insolvency practitioner.

Headlines about football clubs “going into Administration” or large employers “going into Liquidation” are commonplace as well as mentions of winding up orders, LPA Receiverships and voluntary arrangements – it all sounds pretty grim and terminal. And some of it is – particularly if business owners fail to take early advice when they face financial difficulty.

But the insolvency industry does much more than “bust” companies. Recently, the prompt and pro-active actions of the director of a business in seeking advice from Wilson Field had far reaching consequences. The company provided care assistants into the homes of people needing help. Faced with the fact that the company could no longer trade profitably the director could have walked away from the company and the main creditor (the taxman) would have received nothing. Instead, the company was placed into Administration until its sale as a going concern could be arranged. The result – 60 staff retained their jobs, numerous vulnerable and elderly clients were not abandoned and Her Majesty’s Revenue & Customs whilst not fully repaid did receive a significant amount. The director gained nothing other than the knowledge that his staff and clients had not simply been abandoned.

Running a business is not easy – particularly in the current climate. Businesses depending on public sector contracts or operating in industries such as retail, leisure, construction or haulage are probably concerned about future sales. They are also probably wondering if their bank will support them if they hit a snag. And heavily-borrowed businesses will doubtless be concerned about the prospect of interest rate increases.

Insolvency practitioners have a number of tools at their disposal including access to private investors, sources of finance and equity in certain circumstances.

Behind every business is a person – or people. If you are running a business and are worried about any issues mentioned above the worst thing you can do is nothing. Discuss the problems without delay with a licensed insolvency practitioner. The sooner you take advice the more options are usually available and the better chance of survival your business will have.

For free confidential advice, contact Wilson Field.

Checking the vitals

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Have you ever undertaken a first aid course? If not, you should. It’s a selfless act which might save a life.

If you have been trained and come across somebody with a gaping wound, then you’ll know that one of the first things to check is that your patient is breathing. The logic? If you don’t breathe, it won’t take long for your heart to stop pumping oxygen-carrying blood around your body (including to the gaping wound). This is not to say the gaping wound isn’t serious – it could be life-threatening. It’s a matter of priorities. And just so with the economy.

The International Monetary Fund has warned that the global economy has entered what it calls a “dangerous new phase” of low growth and high public debt. Everybody knows that there is too much public debt. It’s a serious gaping wound which won’t go away and needs treating. But before that receives treatment the government needs to stimulate growth and restore confidence. It is for this reason that the media is suddenly full of suggestions to pump money into developing the country’s infrastructure. This will create employment and pump more money into the economy.

Following the Great Depression in the US in the 1930s, the ‘New Deal’ was launched which involved projects to build roads, dams and electric systems. The main purpose was to create new jobs and combat 25 per cent unemployment. While some economists would not agree, it was generally deemed a success.

The state of Eurozone and slowing growth in both Europe and the US have magnified the vulnerability of the world’s economy even further. And what does that mean here? Well, in the third quarter of 2011, the FTSE 100 index in the UK recorded its worst quarterly performance since 2002, and the fourth worst quarterly performance since its launch in 1984.

No matter what side of the politico-economic fence you sit on, these results are alarming and I believe the time has come to make the stimulation of growth the main thrust forward rather than reducing public debt at any cost.

Confidence is so important in addressing growth. Quite simply, lack of confidence inevitably leads to lack of growth – for example consumers “tightening their belts” and changing their spending habits. This is driven by worries about job security, fear of increased interest rates and the effect of 4.5 per cent inflation eroding spending power. This initially impacts on retail and leisure businesses but gradually passes along the food chain to wholesalers and trade service suppliers. And lack of confidence results in expansion plans being scrapped.

Companies would normally turn to banks for support but the banks are still licking their own wounds from the recession and are not in great shape themselves. At a time when they are risk-averse, they are not going to look favourably on a company with a weak balance sheet. So, unless alternative forms of lending such as invoice finance or private investment are available to plug the financial gap, businesses potentially face failure.

The road to financial recovery is going to be fraught with challenges and the coming months will be both crucial and revealing in equal measure. Arguably, the biggest challenge will be for world leaders, in politics and banking, to look beyond reactive debt crisis solutions. If they can balance the value of investment and infrastructure against the headline-making growth of public debt, there is the potential for growth, restoration of confidence and achievable recovery. But it is a big ‘if’.

To speak to an expert from Wilson Field’s free advice line call 0800 458 3320 or visit the website at www.wilsonfield.co.uk.

 

Corporate Insolvency League Tables

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Corporate Insolvency League Tables

Tenon has released the Personal and Corporate Insolvencies League Table for January – August 2011 (shown below).

We are pleased to find out that Wilson Field is the only SME to appear in the Top 20 for both Corporate Insolvencies and Personal Insolvencies.

Through tough economic conditions, it is important to keep on top of the game and continue to meet customer expectations.  We endeavour to offer the best professional advice to businesses and individuals to help them through tough times.

If you are experiencing cash flow problems or would like any advice on how we can help, please do not hesitate Wilson Field.

January - August 2011 – Corporate Insolvencies

 

No. IP Firm Cases Appointments Share
1 Begbies Traynor LLP 922 6.4%
2 RSM Tenon Recovery 586 4.1%
3 PricewaterhouseCoopers LLP 394 2.7%
4 Grant Thornton UK LLP 343 2.4%
5 KPMG LLP 338 2.3%
6 BDO Stoy Hayward LLP 323 2.2%
7 Mazars LLP 267 1.8%
8 DTE Leonard Curtis 257 1.8%
9 F R P Advisory LLP 257 1.8%
10 Ernst & Young LLP 248 1.7%
11 Deloitte & Touche LLP 207 1.4%
12 The P & A Partnership 206 1.4%
13 Baker Tilly Restructuring 179 1.2%
14 Chantrey Vellacott DFK LLP 164 1.1%
15 F A Simms & Partners PLC 163 1.1%
16 M C R 156 1.1%
17 PKF (UK) LLP 152 1.1%
18 Wilson Field Limited 149 1.0%
19 David Rubin & Partners 131 0.9%
20 Moore Stephens LLP 121 0.8%
Others 8,904 61.5%
Total 14,467 100.0%

 

Please note, statistics are based on data published in the Gazettes to date. Due to the time taken to advertise appointments, counts may vary to those anticipated. Groupings are based on the date of the appointment of an IP. Where a different IP is listed as a joint liquidator on a case, it will be counted twice.

January - August 2011 - Personal Insolvencies

 

No. IP Firm* Cases Appointments share
1 Debt Free Direct Limited 3,648 14.5%
2 Freeman Jones Limited 3,570 14.2%
3 One Advice LTD 2,306 9.2%
4 Grant Thornton UK LLP 2,246 8.9%
5 RSM Tenon Recovery 1,097 4.4%
6 Cleardebt Limited 1,048 4.2%
7 Money Debt & Credit LTD 937 3.7%
8 Consumer Credit Counselling Service V.A. 780 3.1%
9 NTF Financial Solutions Limited 607 2.4%
10 Credit Fix Limited 561 2.2%
11 Mitchell Farrar 530 2.1%
12 McCambridge Duffy LLP 471 1.9%
13 Simple Debt Solutions 466 1.9%
14 Knightsbridge Insolvency Services LTD 402 1.6%
15 Johnson Geddes LTD 352 1.4%
16 Personal Debt Helpline Limited 316 1.3%
17 Debt Lifeboat Limited 315 1.3%
18 Varden Nuttall Limited 306 1.2%
19 IVA Advice Bureau Limited 226 0.9%
20 Wilson Field Limited 208 0.8%
Others 4,728 18.8%
Total 25,120 100.0%

Source:  RSM Tenon Corporate Recovery League Tables

Am I Trading Whilst Insolvent?

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Most company directors have heard the phrase ‘trading whilst insolvent’ or ‘wrongful trading’, but what does it actually mean?

A Liquidator can take an action for wrongful trading under Section 214 of The Insolvency Act 1986 against a director, if it can be shown that he;

“knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation.”

This also applies to shadow directors, more of which can be read about in our earlier blog entry here. A successful wrongful trading action taken by a Liquidator can result in a director being made personally liable for the company’s debts which occurred after he ought to have realised that the company was insolvent.

So, how would a director know his company is insolvent? The definition of insolvency, as stated in Section 123 of The Insolvency Act 1986 can be summarised as;

a)     The inability of the company to pay its debts as they fall due

b)    The value of the company’s assets being less than the amount of its liabilities.

All this law is very well and good, but practically, what can a director look out for to indicate that his company may be insolvent? Some common indications of insolvency are listed below;

1)     The company is failing to pay its creditors on time, resulting in County Court Judgements building up.

2)     Payments to HM Revenue & Customs in respect of VAT or PAYE are not made on time and arrears are starting to build up.

3)     Filing at Companies House is not up to date as accounting duties fall by the wayside whilst the company deals with pressing cash flow issues and creditor pressure.

4)     The bank starts returning the company’s cheques as unpaid due to constraints on the company’s cash flow and the overdraft limit is regularly exceeded.

It is a director’s responsibility to act in the best interests of the company and ensure that the creditors’ position is not worsened by a prolonged period of trade following the onset of insolvency. It is good practice for a director to regularly review the company’s financial position and ensure that they take specialist advice when needed.

If you are worried about your company’s position or have suffered some of the symptoms of insolvency as listed above, contact our specialist advice team at Wilson Field to discuss your options.

Ruth Kaiser

Are You a Shadow Director?

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A recent story in the news covered the sentencing of a man who received 50 weeks imprisonment suspended for two years, disqualification from being a director for eight years and an order to pay prosecution costs of £2,000 for contravening an undertaking not to take part in the management of a limited company. Whilst he had not been a registered director of any limited company after signing the undertaking, it was concluded that he had in fact been acting as a shadow director.

So, what is a shadow director and how could it affect you in an insolvency situation?

As described in the definitions of the Insolvency Act 1986, a shadow director is a person in accordance with whose directions or instructions the directors of the company are accustomed to act.

In an insolvency situation, this distinction is important, as a shadow director is considered to be just as accountable for the company as any formally appointed director.

If you think that this describes your position within a company, you are equally as responsible as the formally appointed directors and that you have a duty to act in the best interest of the company at all times.

Bankrupts are not allowed to act as company directors, but if they are acting as shadow directors they could fall foul of the law.

If you are worried that you may be a shadow director please contact Wilson Field Limited now  on 0800 458 3320 or visit our web site at www.wilsonfield.co.uk and we’ll be happy to provide further information.

High Street Retail Casualties

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Rather predictably, there has been a flurry of retail casualties on the High Street. This sector obviously depends directly on the public and consequently is now feeling the effects of poor consumer confidence. With job insecurity, the VAT increase and government cutbacks all starting to bite and the fact that inflation has eroded spending power, the public are cutting back with a vengeance. Higher fuel prices have also contributed to the equation as a result of which retail sales in clothing and non-food have tumbled.

Statistics for the first quarter of this year showed the number of retail companies going into administration increased by a massive 30% compared with the same period last year. Well known operators Focus DIY, Habitat, Jane Norman and now T J Hughes have all recently suffered and HMV and JJB Sports are known to be experiencing problems.

It is only the well known names which hit the press but many smaller retailers are similarly suffering. If you own a retail business and are worried, visit our website at www.wilsonfield.co.uk or for free advice ring Freephone 0800 458 3320 .

Opportunities Are Not Lost – Somebody Else Takes Them…

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Opportunities in life don’t simply evaporate – if we turn a blind eye or ignore them, somebody will steal them. It can apply easily to business deals, investment opportunities as well as general business decisions.

The concept is simple, if you dither about and are indecisive or if you allow yourself to be distracted, a sharp opportunist could easily take from under your feet, that which you comfortably thought was “in the bag”.

Look at the banks, for example. Whilst they are blaming low levels of lending to SMEs on a lack of demand, the ABL sector has seized the opportunity and is booming – funding those businesses which are seeing growth in their sales and whose banks have abandoned them. They are not reporting a lack of demand for finance. When the banks do return to the market they will realise that customers have long memories and many would readily trade a few percentage points in the interest rate for the confidence of knowing that funding will be available when it is needed moving forward.

Taking opportunities usually involves an element of risk. Do you bid for a new contract which involves increased capital expenditure, additional staff and training costs when confidence in the economy is at rock bottom or do you simply batten down the hatches and let somebody else take the risk (and potentially reap the reward). Running a business and taking chances is not for the feint hearted.

And if your business is already struggling or has recently suffered a financial body blow, there is the opportunity to do nothing or be proactive and accept professional advice while there are still various options available.

If you feel that you have missed out and are now regretting it, there is always hope. You have to deal with it and move on and in business obtaining quality, timely, professional advice is the best starting point, particularly if you are experiencing cash flow problems. For friendly, confidential, free advice call Wilson Field on 0800 458 3320.

On the positive side you may look back and realise that that missed opportunity would have been a bad move anyway.

Time to Become a Company Director?

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Many small business owners are sole traders or partners. Frequently, perhaps in the excitement of starting their new venture, they fail to seek professional advice to look at the alternatives.

Since April 2011 there have been a number of articles written by experts, advocating the benefits of incorporating small business for tax reasons. But there are other reasons to incorporate, not least of which is the protection to shareholders of limited liability. As far as the law is concerned, a limited company is a separate legal entity to its shareholders. As long as the directors and shareholders conduct themselves properly and do not commit themselves by signing such as guarantees they are not liable for the company’s debts. The concept of limited liability was created to encourage investment and entrepreneurial spirit. Without it, it is difficult to imagine how the stock market would exist

Nobody goes into business expecting it to fail. Regrettably, running a business can be a minefield, particularly for inexperienced owners. But in a period when in recent years huge companies such as Woolworths and Lehman Brothers have toppled, no business owners can be complacent.

So if you are starting up in business or are already a sole trader or partner, take professional advice about whether or not you would be better off incorporating. Don’t delay, do it now.

For free confidential advice call Wilson Field.