A recent investigation by The Independent revealed that two thirds of pay day lending sites have no valid consumer credit licence. Without such a license they are breaking the law. A Which report has revealed that almost half the people who turn to payday loans can’t afford to pay them back. This has led to the rise of the “Zombie Debtor”, one who is only able to pay back interest, never the capital debt.

Debt Management Plans are also increasingly being used to avoid formal insolvency by individuals. Personal insolvencies increased in the third quarter of this year and are still running at well above the average compared with the last 25 years. Worryingly, these figures do not include those turning to Debt Management Plan companies, which are seeing increasing numbers turn to them to avoid bankruptcy.

Whether a company facing liquidation or administration or an individual facing bankruptcy, the advice is always to approach a properly regulated and licensed organisation. Do not be taken in by the sweet talking salesman whose only interest in a debtor is the commission that he can earn.

As always, it is necessary to set the scene. Elkington Brothers was founded in the 1930’s and during its period of operations had grown into a specialist tooling and equipment supplier to major names in the European and Japanese automotive, aerospace, rail and agricultural industries such as Jaguar Land Rover, Nissan, Honda, Aston Martin, JCB and Caterpillar. However, some three and a half years ago the company found itself in a difficult financial position with severe cash flow problems precipitated by a downturn in the automotive sector and an increasing trend of customers sourcing from the Far East. The company’s situation was further compounded by some bad debts, a few customers ceasing UK production, some customers taking longer to settle accounts and a number of long serving directors retiring.

In the 12 months prior to contacting Cranfield Business Recovery, James, the sole remaining director, implemented a number of cost saving measures in an attempt to return the company to profitability. Whilst these actions stemmed the tide further action was required. It was at this time that James was introduced to Cranfield and having considered the position of Elkington Brothers it was deemed that a form of business rescue was appropriate. In the end a Company Voluntary Arrangement, or CVA, was implemented.

However the real story for me is not about the successful implementation of an insolvency procedure, or the fact that the company successfully traded through the Arrangement period, nor indeed how Cranfield aided and supported the company throughout the period of the Arrangement. The real story is that of the director and the staff at Elkington Brothers, the sacrifices that all were prepared to take in order to prevent redundancies, and the sense of loyalty that endured within the workforce during the Arrangement and beyond that not only allowed the company to successfully exit from the Arrangement but redress the sacrifices made during the early period of the Arrangement and in the process grow the business, delivering a higher than anticipated return to creditors.

Of course it was necessary at the outset to craft a Proposal that looked at the underlying business, assess what was possible to deliver by way of an offer to creditors yet allowing the company to stabilise its financial position and provide a platform for future growth. For me, all of these aims are as fundamental as each other, for the combination provides the impetus for owner managed businesses to deliver on their promise to creditors. But the real benefit should be that it generates a strong and efficient business that both management and employees take a real pride in, which suppliers view as a company to do business with and which will be one small cog in the wheel of recovery that this country so badly desires.

To read Jame’s story, published in Business Matters click here

One of the positive aspects of my corporate recovery and insolvency work is when I am approached early enough to make a difference. Such a case occurred last month when I was contacted by an accountant who advised he had a client that needed help. As always a free consultation meeting was arranged and a Company Voluntary Arrangement strategy was agreed.

Now if anyone tries to tell you that a CVA is a soft option, go and talk to somebody else because it is not. What it is however, is a window of opportunity to save a company from liquidation or administration, but it comes at a price. That price is the Olympian effort and commitment that needs to be shown by the management team and employees to overcome the challenges and problems that arise to achieve a successful CVA. But as 29 golden individuals and teams have just shown, focussed determination brings its rewards.

One individual who last month stood on the starting line of the CVA experience is Wayne Hayward, Finance Director of Powerdrive PSR Limited. I asked him, in his own words, to describe the emotions of taking his company into a CVA and you can read his article by clicking here

Wayne and his company are at the start of their CVA journey, a journey that will last sixty months. There will be hurdles to jump and new strategies may have to be adopted to handle unforeseen events. With focussed determination, however, I believe that Wayne and Powerdrive will achieve their objective, justifying the support and help that they have received from their creditors and other stakeholders. We wish them well.

I have seen the effect a business failure can have on company owners and directors first hand. Business owners who are not protected risk losing their homes and other personal assets, which affects them for many years. Seeing your company fail is one thing, but to also lose your personal assets too as a result of this is a doubly devastating blow.

I would urge directors across the region to consider the worse case scenario, even if their business is currently very solid. Putting a Director’s Debenture in place is a straightforward process and the earlier directors think about this the better.

I recently worked with a company director who wished he had taken this advice as he is now being forced to sell his home as a result of the current recession after having to place his company into Administration. He said “It was only after I had consulted Cranfield that I learnt about a Director’s Debenture. Had I known about this at the time I remortgaged my house and invested the money in the company I wouldn’t now have to be selling my house to repay the money I borrowed.”

I work closely with clients to help them avoid business failure by carrying out a business health check and recommending a business recovery plan. However, when things are beyond recovery, I can also help clients to choose the best options for closure and winding up.

For further information about setting up a Director’s Debenture, please contact me on 024 7655 3700. Alternatively you can email Brett to request a brochure

It therefore grieves me to read predictions that this once in a life time event will potentially be marred by protests, transport issues and price gouging. These issues should not be allowed to distract from the great festival of sport that will take place this summer and it is incumbent upon all of us to make both the Olympics and the Para-Olympics a great success.

If the Government had known what the economic conditions would be in 2012 back in 2005 would they have bid for the Games? “Almost certainly not” said Tessa Jowell, the minister for the Olympics and Paymaster General back in 2008, at the start of the current financial difficulties. But the impact to GDP that the Games will bring is far from settled and I want to believe that both the tangible and the intangible benefits will be there for all to see after the final cheers of the closing ceremonies die down.

As in any event of this size there will be corporate winners and losers and I am in no doubt that there will be Liquidations and Administrations to deal with before, during and after the event as entrepreneurs realise that they did not get their sums right. Why? Well let us not forget that this is, at its heart, a commercial venture and there will be profits to be made and losses to deal with.

So let us be upbeat and positive about this year and give our full support to the athletes, the organisers and all those involved in making this a world event to remember. Oh and by the way, let us not forget that a certain well know personality is celebrating a diamond anniversary this year, which should also give us cause for good cheer.

Last year figures show that in Ireland as few as 29 people were declared bankrupt in that country compared with almost 60,000 in England and Wales. Debt forgiveness in Ireland is not strong and is incredibly penal. An Irish bankrupt is not discharged from bankruptcy for 12 years. To get an earlier discharge, creditors must receive 50 per cent of what they are due. Compare this to the UK where a bankrupt is discharged in 12 months as long as no objection is raised by the Trustee in Bankruptcy, a far cry from 1761 when a bankrupt was hanged at Smithfield for concealment of his assets.

It is not only the Irish that are taking advantage of UK insolvency legislation. For some years debtors from Germany have been relocating to England for the same reasons in respect of not only personal debt but also corporate insolvencies. However the authorities have started a crack down and this month saw the closure of 61 companies set up by a German couple in Britain to help German companies take advantage of the advantageous UK insolvency rules. Also, for some time Insolvency Service officials have been watching for abuses of our insolvency legislation and have taken a number of cases back to the courts and successfully overturned initial bankruptcy orders.

The numbers may not be huge but it is one further example of the difficulties EU officials have in trying to unify a group of countries with very different cultures and backgrounds.

Looking at the wider picture, it may well come down to the fragility of the US and European economies and if the G8 leaders can come up with a strategy to avoid another country becoming bankrupt. However at either a macroeconomic or local level, it may well be as simple as injecting a bit of confidence into owner managed businesses.

Many of the business professionals that I speak to report that some of their clients are having very good years and are growing rapidly, some are bumbling along and a small majority are what are being termed “zombie companies”, avoiding insolvency only as a result of creditor forbearance.

I recently read an article about a survey undertaken by Hilton-Baird Collection Services in conjunction with Credit Today Magazine into late payments. The survey showed that companies typically wait an average of 22 days beyond the agreed credit limit to receive payment, with 67% reporting an increase in the time taken to be paid.

In my opinion this is just one of many issues which on their own are not insurmountable but accumulatively could spark a double dip. Whether it is the increase in the energy prices such as petrol or electric, customers taking longer to pay or everyone’s desire to keep hold of cash; they all bleed confidence from an already faltering economy. This is compounded by the changes made by the banks making the availability of investment and borrowing for small businesses harder to access.

I don’t think there will be a double dip recession but what the past three years has shown is that it is not easy to be in business and you need to be alert to what is happening in your market place and be poised for change.

It is not for me to put the moral case as to whether the care of the less fortunate should be the collective responsibility of us all and which we chose to delegate to those working in the third sector. However, there must be a way that the efficiencies of the private sector can be merged with the caring ethos that exists within those working within the third sector.

At Cranfield Business Recovery covering Coventry, Warwickshire and the West Midlands we have already had to help a number of organisations providing support and services to the most vulnerable and needy in our community to deal with financial problems arising as a result of the austerity measures already introduced.

Unfortunately, we believe that there will be many more organisations that will fail over the coming months as a result of the cut backs in funding. However, we also believe that with external support from those experienced in advising businesses in times of financial distress that not all need fail and as many as possible will continue to offer the support and the services that many in today’s society need.

There has never been a greater need for organisations such as Voluntary Action Coventry (formerly known as Coventry Voluntary Service Council), a local infrastructure organisation, which has since 1957 been supporting voluntary and community sector organisations in the City of Coventry and also for us as business rescue specialists in Coventry and Warwickshire to offer assistance and advice.

Alas it is not to be. The Insolvency Service is already in a consultation process to introduce a new set of Insolvency Rules by 2013, we recently had a whole raft of changes which came into force in April 2010 and now the Government wishes to address the public misconception that pre-packs are bad by trying to push through some more new legislation.

Over the past few months there has been wide reported criticism that ailing businesses are sold back to the directors at a cheap price. I think this has been wrongly reported and the numbers of businesses that have been rescued by using this process by far outweigh the odd exception when a “pre-pack” may not have been the best option.

The proposed changes to the way “pre-packs” are handled may require a minimum of three days notice to all creditors before a sale is allowed to be conducted. In my opinion this will only serve to dramatically reduce the value of a business as the industry learns of the imminent failure, competitors attempt to undermine the business model and goodwill in the company rapidly erodes. In the most extreme of cases, the damage caused by having to consult with creditors will scare away any interested parties or worst still, there is no meaningful business left to sell!

I believe that the existing “pre-pack” regime can offer many advantages; it offers continuity for the stakeholders, often maximises the value of the assets and most importantly it protects the jobs of the employees as they are re-employed by the purchaser.

If these changes are forced through by the Insolvency Service, we will see many more liquidations and businesses closing down where previously an entrepreneur may have rescued the business by way of a “pre-pack”. Is this the beginning of the end of the business rescue culture?

A survey conducted by Maris Interiors LLP has revealed the average cost of sandwiches has decreased from £5.91 in 2006 to £3.80 in 2011. “Crayfish and avocado” and “chicken teriyaki” are now replaced with “cheese and pickle” and “tuna and sweet corn”.

Austerity remains the watchword of the moment for companies in a range of industry sectors and sandwiches have not escaped.

Maintaining a thriving and healthy business is driven by good financial management. Business planning and cost control are just two key areas we explore in great detail when assessing the heath of a company.

The Coventry Inward Investment team are reporting that despite difficult economic times Coventry city centre has been bucking the national trend. Changes in footfall in Coventry have consistently been 2.5 % ahead of the national average over the last 12 months, resulting in over 18 million visitors to the City in the last year.

Despite the negative news that we hear on a daily basis, it seems likely that interest rates will stay at the historic low for some time to come and I am receiving feedback that the Government message is finally getting through to the banks and they are now starting to look at responsible lending opportunities more favourably. We are far from the culture of 2008 and earlier but it is definitely going the right way.

It would appear that the corporate failure rate is also declining with reports that there has been a 16 % drop in the number of liquidations during 2010/11. This report is ahead of the official figures that will be issued by the Insolvency Service on Friday 6 May 2011 but is does support the anecdotal evidence in the market place that Insolvency Practitioners are not as busy as they had expected to be this year.

At Cranfield Business Recovery, we are very busy helping businesses stay in business and we have completed some very successful assignments which unfortunately we cannot publicise because we were able to avoid the businesses entering formal insolvency proceedings and becoming public knowledge.

So my advice is to continue to be positive about your business and take advantage of what feel good factor is available as a result of the Royal wedding and the sunshine and get out and do some profitable business this spring.

I am delighted to confirm that Cranfield is making its own contribution to the Olympics and we have renewed our sponsorship of Olympic hopeful, Katrina Wootton. Following a difficult year of illness, Katrina is competing again and will shortly be heading off on a 4 week pre-summer training trip to Albuquerque, New Mexico for some altitude training.

To follow Katrina and get regular updates on her bid to fulfil her ambition of competing in the Olympics, read her monthly blog at www.katrinawootton.co.uk.

I hope that Katrina will get the opportunity to compete in the brand new Olympic Stadium which is located in Stratford. I have been following various press releases connected to the Olympic Village and it looks like the stadium is near to completion. Some of the interesting stadium facts are that the turf has come from Scunthorpe, it came in £10m under budget, took some 1,000 working days to complete and will have a capacity of 80,000 seats.

We at Cranfield wish Katrina every success and hope our ongoing support will play a part in helping her to fulfil her potential.

I recently came across an article produced by Lloyds TSB Bank which made for some very interesting reading. Some of the key facts of the article were that nearly a third (31 per cent) of small businesses in the West Midlands suffered cash flow problems in the second half of 2010 and 47 per cent of the companies surveyed blamed delayed payments from customers for putting pressure on their cash flow.

It would appear that in the absence of any support from the traditional sources of funding such as the main high street banks, it is evident from this survey that companies are looking at other methods to fund their trading activities, including increasing the time that it takes to pay their suppliers! Over the past two years it is not unusual to see a business’s debtor days increase from 60 days to anything up to 120 days.

As it is the start of a New Year, directors should use this time to conduct a mini review of the business and to plan what will happen during 2011.

• Prepare a cash flow forecast so that you are aware of what your immediate short term cash requirements are.
• Review your credit control process. Are your debtor days being extended? Have any of your customers exceeded their credit limit? Is your cash collection working effectively?
• Write to all your suppliers and review the pricing structure that they offer. Is there a new supplier who will provide more favourable terms?

Remember the old adage, “Cash is King”. Your company is not a high street bank; it therefore should not act as a financier to its customers. As the green shoots of recovery begin to flourish, you don’t want your business to be faced with the situation where you cannot fulfil a growing order book as there is no working capital available to buy materials!

During 2010 I have seen Sports and Social Clubs facing increasingly difficult trading conditions which has resulted in a significant number ceasing to trade. At Cranfield we have seen a four-fold increase in the number of Sports and Social Clubs seeking advice and assistance during 2010.

The state of the economy, social changes and the increase in the availability of cheap alcohol from supermarkets and other “off-licence” premises can also be highlighted as factors contributing to the decline and increasing financial difficulties.

Finding members to give up a significant amount of time is also difficult and who can blame members for not wishing to join the Committee. The new Police and Social Responsibility Bill for example proposes the possibility of a fine of up to £20,000 and a possible six month prison sentence for those who do not pay the annual fee to the local licensing authority.

We have already worked with a number of Clubs to help steer them through troubled times and are being approached by many more. Tough times do not necessarily spell disaster and our aim at Cranfield is to use our expertise to guide Sports and Social Clubs towards the most satisfactory solution for all involved.

Where specific circumstances exist, it is not often recognised that directors can be held personal liable for arrears due to the Crown and furthermore HMRC can also impose conditions on any new business they are involved with, which can lead to severe funding issues.

The three key risks directors run if tax liabilities begin to build are:

Potential Personal Liability for PAYE/NIC

Where a company fails to pay over PAYE deductions and NI contributions because of a director’s negligence, under Section 121C of the Social Security Administration Act 1992 HMRC has the power to issue a personal liability notice (“PLN”). The effect of a PLN is to make the director personally liable for the company’s unpaid taxes.

HMRC can issue a PLN whenever contributions are unpaid because of the neglect of a culpable officer. While failure to pay contributions can obviously constitute neglect, in practice HMRC have only considered issuing a PLN in the most serious of cases where they will look at factors such as:

• any persistent failure to pay over PAYE/NIC when other payments are being made on time;
• if director(s) remuneration has continued to be paid during the period; and
• has the individual been involved with other companies which have failed to pay over taxes?

This provision has existed for many years but HMRC have rarely enforced it. In my opinion, together with the loss of its preferential status in 2003, the Crown are now starting to see increased debts as a result of failing companies and are now seeking to redress the balance but perhaps in the more serious cases of habitual default.

Deposits On New Trading

Finally, where the directors of a company which has failed owing substantial Crown debt are involved in a new business, HMRC are also increasingly making use of their powers to demand that the new business pays a deposit to cover tax that may fall due.

Disqualification

It is also worth reminding directors that significant debts due to HMRC could be construed as “trading on Crown Debts” and this is an offense under the Company Directors Disqualification Act 1986 and could lead to a person being prohibited from acting as a director for a period between 2 and 14 years.

So directors, be warned, it is clear that the Crown are no longer going to ignore the fact that some companies are using the money due to HMRC to fund their business operations and if the company fails, this could have significant personal consequences for you!

There are a number of basic constituents that make up a successful business turnaround and I have already mentioned the first, a viable core activity to act as the foundation from which the company can be rebuilt. A company built on sand will very quickly be washed away as market liquidity dries up further.

Funding is the next vital ingredient which comes from a number of sources; internally, realising surplus assets, refinancing, bank borrowings or private equity. Each of these funding sources warrants a blog of their own but for now, suffice to say, all represent a challenge.

Any turnaround requires the various stakeholders to buy in to the turnaround process. They need confidence in the plan and the process, be it the employee on the shop floor or the bank manager who needs to convince his credit sanctioning manager that the business is worth supporting. Suppliers who have probably seen deterioration in the speed their invoices are paid will also need convincing as will customers who need certainty of supply.

A clear vision or goal of where the business is going, supported by measurable targets, is also essential and is the road map of any successful turnaround.

And finally time is required to allow the turnaround process to deliver its results. Turnaround practitioners can relieve the sick of their ailments and restore them to health, they cannot revive the dead and therefore as difficult as it may be the early involvement of a turnaround specialist can be the difference between survival and liquidation.

It has been widely reported that HMRC could not continue to act as a bank and allow the arrears of tax revenues to increase and that it had to take a tougher stance on companies meeting their ongoing obligations to the Crown. It is becoming clear from my own recent experiences that instructions have been given to front line staff to reduce the flexibility offered to companies.

It has become common knowledge that if you breach a time to pay agreement, renegotiating new terms was very difficult. Furthermore, if you were in a time to pay agreement and additional arrears were incurred, HMRC would be more likely to instruct a bailiff or to commence winding up proceedings.

A recent case in the media highlights the point. One of Britain’s largest architecture firms Archial were forced into Administration after HMRC refused to agree to a proposal to pay the arrears in monthly installments rather than one lump sum. It is understood that Archial, which employs more than 400 staff, including about 200 architects, owes HMRC about £4m.

The advice to your clients needs to be clear, make sure that the amount due to HMRC does not increase. Remember that HMRC have deep pockets and do not always exercise commercial judgment when deciding whether to wind up a company or not. One of our top tips is to take advice early.

The big breakthrough for suppliers came in the form of the “all monies clause” which if documented correctly allows a supplier to recover all goods supplied up to the value of an outstanding debt without the need to have to identify which goods have and have not been paid for. This usually means that as the insolvency practitioner, I am often handing back stock that I would otherwise be able to sell for the benefit of all creditors in a particular insolvent case.

You can imagine my level of excitement when I saw a headline the other day that in the case of Bulbinder Singh Sandhu (trading as Isher Fashions UK) v Jet Star Retail Limited (trading as Mark One) (in administration) and others [2010] EWHC B17 (Mercantile), the High Court had held that an “all monies” retention of title clause in a contract was ineffective.

My excitement was however short lived when I discovered that the ruling was in respect of a very special type of supplier/customer contract which contained provisions that allowed the purchaser to on-sell the stock it had purchased (without discharging its balance with the supplier), and to continue to do so even following the purchaser’s insolvency. Although not the defensive weapon I had thought it was going to be in my discussions with suppliers, it is something that needs to be thought about by clients in the retail environment and as always the importance of having the correct paperwork signed and accessible is as vital today as it was 34 years ago.

Having attended a few meetings, it is clear that whilst some complaints that arise against IP’s stem from a lack of insolvency knowledge by the general public, the majority arise due to the poor quality of correspondence from the IP’s office.

When I first started out in my working life I remember typing a telex to India, sending out purchase orders that I had typed on a typewriter and researching items on a microfiche reader. That was only 18 years ago! It is now common place for international trade to occur via email, skype or video conferencing.

The Insolvency Act was recently changed to allow for the future development of technology and it is envisaged that reports, circulars will be sent or available electronically and creditors meetings will be conducted as virtual meetings.

I am all for change and making the insolvency processes more straightforward for people to access and understand but at what cost? When you quickly respond or send an email, you do not print it out and check it, some people do not even spell check them, they are often in fone txt spk, it may not go to another person for a cold review, it doesn’t bear the company logo and potentially it could be a ticking time bomb. Do you have any control over the emails that are sent by your staff? Are you sure that with important issues you want to correspond by emails which will be admissible in Court?

I guess this is the source of my frustration, if people took a little more time to consider how to communicate with people more effectively, a number of the conflicts which I come across would never exist.

Very impressive I thought until I started to think about how the number of directors facing disqualification compared to the total population of directors of insolvent companies who have a report submitted to The Insolvency Service by insolvency practitioners each year. It also prompted me to re-read Brett’s blog last year entitled “Three in four ‘dodgy’ directors go unpunished”.

In 2009 there were 23,238 Administrations and Liquidations in England and Wales. If we assume that on average each company has two directors, this gives a total of 46,476 directors last year who have or will have a report submitted about them to The Insolvency Service by the appointed insolvency practitioner.

The figures quoted in the article I was reading reported that that a total of 813 directors had proceedings brought against them in court for non-payment of company tax in the year ending 31 March 2010. This compared with 654 in the previous year. So indeed there had been a significant jump in the first quarter’s figures but put this into context, the total number of actions last year was 0.014% of the total number of directors that could have had an action taken against them.

Statistics are a wonderful thing and can be made to read whatever the author wishes. However, I think it fair to say that HMRC, no doubt under Central Government pressure, is stepping up its game and the number of director disqualification prosecutions is likely to rise over the next twelve months, subject to funding being available.

Way back in 2002, The EC Regulation on Insolvency Proceedings 2000 came into force throughout the EU. The main purposes of the Regulations are to set rules governing where in the EU insolvency proceedings should be opened, which country’s laws would apply and to ensure that the proceedings are recognised throughout the EU.

These rules were supposed to make it easier to deal with an insolvent company whose affairs are based in more than one EU country. Regrettably this is not the case and eight years on we are still seeing high profile legal actions testing the Regulations, as creditors from different countries battle it out to gain control of an insolvent company’s assets.

This is probably not something that you would come across every day but a key consideration if your client operates in Europe or overseas. Perhaps the new coalition government will provide smaller businesses with a breathing space and take the opportunity to weed out some of the complex and in my view unnecessary legislation imposed by the previous government or at least make sure that any new legislation is well drafted and will stand the test of time.

On 10 March 2010, laid before Parliament was the new Insolvency (Amendment) Rules 2010. Within these new Rules are some fundamental changes that dictate how we do our job which I will not bore you with today, but that is not my point. My point is that two days later on 12 March 2010 we had laid before Parliament the Insolvency (Amendment) (No2) Rules 2010, amending the Amendment Rules presented just two days earlier.

What level of incompetence must exist within our government structure to enable this to happen and what was the additional cash involved to bring into law changes that are allegedly supposed to save an estimated £48m a year in the cost of administering insolvencies?

Without putting a too political point on the subject, this is yet another example of legislation being drafted and issued without proper thought or care; being enacted on the basis that it can either be changed later or “let’s get the Courts to interpret what we really meant, but either way, let’s just get it out the door”.

Will the next government regime be any different? I fear not.

PS: I am sitting on a train writing this and have just passed a Conservative poster pronouncing “Vote for Change” – if only I could.

The purpose of the event was to launch Cranfield’s sponsorship of Katrina Wootton who is a promising locally based athlete and to increase awareness of how businesses across the region can become involved with the Olympic Games in 2012.

I have had the pleasure of getting to know Katrina over the past few months and during her presentation she highlighted the complete and unending commitment needed to even be in with a small chance of representing her country at an Olympic Games. Just remember that whilst you are away on holiday this year or enjoying your Christmas dinner in December, the likes of Katrina and every other budding Olympian, will be training hard. I was amazed to hear that in a year’s schedule, there is only one week off!

A special thanks goes to David Moorcroft OBE, undoubtedly a proud Coventarian and an ambassador for athletics. If you’ve not had the chance to listen to David speak, I would highly recommend it and the banana and the condom story had the audience in stitches of laughter!

I think London 2012 will be a once in a life time opportunity to become part of this prestigious event, either as a competitor, a commercial partner or as a spectator. I hope that everyone who attended the breakfast meeting will look at how they can have their own Olympic experience. I was certainly inspired and actually went to the gym the day after the event!

Notts County’s new owners are under no illusions as to the mountain that needs to be climbed and the eventual purchaser of Portsmouth is going to have a long hard road to recover from, no doubt, the Championship. Nearer to home, Coventry City have stabilised the position and after a bit of a wobble earlier in the season are now looking upwards and not downwards which is really good to see. The big success story of course is Leeds United who after a financial disaster has emerged fitter and stronger and are now really challenging for promotion to the Championship.

HM Revenue & Customs has shown that it will not be drawn to the often fantasy business world that is Football and are no longer prepared to tolerate clubs failing to pay their tax liabilities. In addition to Portsmouth, this month has seen two other league sides feel the long arm of HMRC reach out, both being served with petitions for winding up. The problem is that once HMRC issues a petition, lots of other creditors jump on their coat tails and the whole situation becomes that much worse.

I think we are going to see many more casualties as clubs continue to believe that they can enter into contracts with players with little or no possibility of ever being able to pay the bills but believing that somehow it will all be OK before the final whistle blows.

If the company fails and goes into liquidation, it is likely that any dividends that have been declared will be reviewed to ascertain that the rules have been properly followed. The common problem is that quite simply, any monies drawn where there are not sufficient profits or distributable reserves are unlawful and will need to be repaid to the company.

Remember what a dividend is, it is a distribution (reduction) of the company’s capital to its shareholders. The effect of a dividend declaration inevitably is that the company’s creditors will have less reserves available to discharge the debts due to them, if ultimately the company runs into financial trouble. The precise rules on dividends, whilst not uncomplicated, do start from the premise that creditors should be protected from shareholders taking excessive dividends to their detriment.

As a consequence, the rules on dividends require certain procedures to be vigorously followed largely without exception. It is not permitted to draw money from a company as a director and then after the event determine that the same was a dividend payment. You must declare the dividend first and then follow all the correct procedures when doing so before making the payments.

For those companies that are struggling with debt and are facing financial difficulties, as directors you need to be careful how you draw your remuneration and remember do not backdate your dividends. It may be that you have to draw your salary under the PAYE regime until the company returns to more profitable times.

Since 1991, the figures have been fairly consistent and show that of all IVA entered into by debtors, about one third do not reach a successful conclusion.

I will confess that I fully expected the failure rates to be higher but even at these levels, questions must be raised as to the quality of the original advice given to debtors entering into an IVA and whether bankruptcy would have been a better option.

Here at Cranfield we have always been very cautious about advising debtors to enter into an IVA and only in very special circumstances do we consider this option to be the right option.

According to the statistics there are still two IVAs ongoing that started in 1988. A twenty two year old IVA seems to be a little excessive!

It has not been an easy year for the restaurant owners and even the most famous have seen failure such as Anthony Worrell-Thompson and Tom Aitken. Has it been as bad as was expected at the start of the year? Probably not, as customers have demonstrated a healthy appetite for eating out during the year encouraged by promotional offers and in many cases a greater disposable income with the drop in interest rates.

Try turning up without a reservation at a good quality restaurant most lunch times or evenings and you will be disappointed. Recession, what recession you may ask?

But what of 2010? VAT will be moving back to 17.5% on 1 January and there is speculation that if the Tory party get in at the May election it may move up to 20%. There is a strong possibility that interest rates will begin to edge up during 2010 and the Crown is not quite as willing as it was to agree extended time to pay arrangements.

It is the latter point that concerns me the most. Many in the industry have been building up significant Crown debt during the year and making arrangements to repay the liability during 2010. That facility is now coming to an end and going forward they will not only have to find the money to pay the current tax bill on time, they will need extra funds to pay the arrears. I am afraid to say that many will not be able to and will fail.

For the accountants with clients in the restaurant sector 2010 is going to be a year of vigilance. These clients are going to need help. They are going to need to understand the breakeven levels and what is making money and what is not. They may well need help in dealing with their bank and possibly raising new capital. There is an opportunity in 2010 to generate some extra fees for this additional help as well as helping to retain a valuable client.

So it is not all doom and gloom, at the beginning of this year it was expected that the restaurant sector would be badly hit, this has not happened, it has been the pubs and off licence trade that appears to have suffered more.

I fully expect that people will continue to support the establishments that offer quality and value for money and for a food lover such as me, a drive on these two fronts has got to be good news.

A recent survey by our trade body R3 showed that of the 4,752 adverse reports sent to the Insolvency Service, detailing unfit conduct by the directors, only 1,252 directors were disqualified or about 26%. Six years ago 45% of directors were disqualified. Bear in mind, however, that in the first half of 2009 there were 10,169 Liquidations and 2,338 Administrations.

R3 President Peter Sargent says “One in four reports resulting in a disqualification is simply not a high enough strike rate. The Insolvency Service does a good job to get the disqualifications it secures but clearly needs additional resources to pursue more cases.”

For those of you who are not aware, under the Directors Disqualification Act 1986 the Insolvency Service has two years to take an action against unfit directors and can seek a court order to disqualify them from taking any other directorships for a period of 3 to 14 years. Most commonly this is for trading whilst insolvent and the average disqualification period is six and a half years.

Peter Sargent concludes: “We have urged both Government and the opposition to consider introducing compulsory education for disqualified directors. Using a driving analogy, those caught speeding are encouraged to undertake a speed awareness course. Greater publicity for cases the Insolvency Service successfully prosecutes could also act as an additional deterrent, as well as more resources to police those who have been disqualified. Otherwise some ‘dodgy’ directors will simply slip through the net and be allowed to set up shop somewhere else.”

No talk of toxic debt or the credit crunch; back in those days it was straight forward business failures that were the problem. How ironic that one building society, Abbey National, are specifically mentioned as being virtually untouched because of its largely mortgage based loan book, derived from its building Society past.

Some things haven’t changed however. Back in 1991, small companies in services and manufacturing were failing at record levels as a result of borrowings taken out in the late 1980s as business confidence soared and bankers fell over each other to offer money on ever more favourable terms. Sound familiar?

I suppose it is in our DNA that each generation thinks it knows best and believes the way past generations did things was old fashioned and out of date. It is for this reason that perhaps no amount of Government intervention will be able to stop the boom bust cycles of the future but I suppose we can all live in hope that maybe this time, lessons will be learned by the next generation of decision makers and that they will be a little more humble in their self belief that they know best.

This question relates to the point about where does the liability lie in respect of employees’ claims for unpaid wages, holiday pay, redundancy and pay in lieu of notice when a company enters into an insolvency procedure. A simple question one might think but as in all matters relating to employment legislation not so easy to answer. It all revolves around the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”)

It appears that where the intention is to liquidate the company and its assets, then TUPE will not apply and the liability to the employees will be met by the National Insurance Fund (“NIF”). Therefore, if a company is put into liquidation and either a connected party or a third party purchases the assets of the company from a liquidator, it appears clear cut that the employees’ liabilities will be paid by through the Redundancy Payments Office out of the NIF.

In Pre-Pack Administration situations the position is not so clear. In an employment Appeal Tribunal’s decision in Oakwood v Wellswood (Yorkshire) Limited, formally handed down in January 2009, it was concluded that if Administrators continue to trade a business with a view to a sale as a going concern and achieve such a sale, then TUPE protection will apply to employees who will be transferred across to the new business. Where, however, as in the Oakwood case, the Administrators recognised that there was no possibility to trade the business and sold the company’s assets immediately upon their appointment, it was held that TUPE did not apply and similar to a liquidation situation, the employees did not transfer across and the liability to the employees will be met by the National Insurance Fund, potentially good news for the purchaser.

At the time of writing, an application for permission to appeal to the Court of Appeal has been heard and a decision is awaited. It seems likely that permission will be granted for the appeal.

The answer is simple, to improve its chances of recovering the debt from the company in the event of its collapse. As a debenture holder, the bank sits above unsecured creditors and shareholders and therefore when there are not enough funds to go around, the bank stands a much better chance of getting its money back.

If the banks know that by taking out a debenture they are in a more secure position, why is it that directors do not take out a debenture, secured over the company’s assets when they introduce money into their own company by way of a director’s loan account? We believe the reason is they are not advised to do so.

Securing money advance to a company by way of a debenture is a relatively simple process but it has to be done right, otherwise the security is worthless. Very importantly, the debenture needs to be put in place before any money is introduced otherwise the advantage could be lost if the onset of insolvency occurs within two years of the debenture being taken out.

At Cranfield Business Recovery we are able to advise directors, thinking of introducing their own money into their company and how to improve the chances of recovering that money if things do not go according to plan. During these difficult financial times, it is more important than ever to protect funds being introduced and by the use of a debenture, this can be achieved.

In this month’s blog I want to outline how a Pre-Pack Administration can be done for the benefit of all stakeholders.

Let us first consider the circumstances in which a Pre-Pack Administration is discussed. It is going to be at a time when a company is in severe financial difficulties and creditors are screaming for their money. Cash flow is non-existent and there is no further funding available. The point here is that creditors are already facing the high probability that they are not going to be paid the money they are owed.

In many situations where there is an underlying viable business, it makes economic sense to negotiate a sale of the business prior to the appointment of an Administrator with the sale affected immediately on, or shortly after, his appointment. By doing this there is no break in trading and there is continuity of supply to customers. Why is this important?

If an Administrator is appointed and only then sets about identifying a purchaser for the business, he is faced with the task of keeping the business trading, funding that trading and retaining the goodwill of customers who will immediately be looking to source supplies elsewhere. How long is the window of opportunity to find a buyer? – it may be as little as one week.

By negotiating a sale in advance, the Administrator secures a greater value for the business and assets than would be achieved if the business were closed, ensures future employment for a majority of the employees and results in a business continuing to trade, buying goods and services from suppliers.

The benefits are obvious to all stakeholders but creditors must recognise that in these circumstances they were going to lose the money owed to them due to the insolvency of the debtor but by the business being sold on, they have the opportunity to retain a customer (dealing on a cash only basis no doubt) and rebuild the relationship which has naturally been damaged. Every business owner knows that it is more economical to keep an existing customer then to find new ones.

Under new guidelines issued to Insolvency Practitioners in January 2009, we have a duty to keep detailed records of the reasoning behind the decision to undertake a pre-packaged sale and should be able to explain and justify why such a course of action was considered appropriate.

We must perform our duties in the interests of the creditors as a whole and to avoid unnecessarily harming the interests of the creditors as a whole. Importantly, we must provide a detailed explanation to creditors as to why a pre-packaged sale was undertaken and this information should be provided with the first notification to creditors.

To lose money is never a happy experience but creditors must recognise that a Pre-Pack Administration may increase the prospects of receiving a dividend and gives the opportunity to continue to do business in the future.

I’ve also heard from several company directors where their bankers have unexpectedly withdrawn or not renewed their banking facilities, leaving the company with severe cash flow difficulties. So what can you do?

The old adage of “Cash is King” has never been more pertinent than in the current climate and prevention is better than the cure.

• If your bank facilities are coming up for renewal, speak to the bank early to gauge whether they are proposing or willing to renew the ongoing facilities. It is going to be very difficult to move to an alternative banker.
• Prepare a cash flow forecast so that you are aware of what your immediate short term cash requirements are.
• Review your credit control process. Are your debtor days being extended? Have any of your customers exceeded their credit limit? Is your cash collection working effectively?
• Analyse your areas of expenditure and see whether any cost savings could be made. Are all your forthcoming purchases vital to the ongoing trade of the company or can they be deferred.

If the company is still projecting a deficit in the cash flow forecast, I would always recommend getting early advice from a professional such as an Insolvency Practitioner. There are several solutions that we are able to offer which will enable the company to restructure their debt and allow the business to continue.

If you would like a free meeting to discuss your options then please do not hesitate to contact me.

The main topic of conversation in the insolvency world at the moment is the new guidelines in respect of Pre-Pack Administrations. BBC radio 4 even had an hour long program on the subject a week ago.

Are they commercially acceptable or are Pre-Pack Administrations simply an abuse of process? The truth is it depends on where you are sitting.

As a business owner who has hit hard times as a result of this current recession, a Pre-Pack Administration gives the opportunity to start again. For employees, it is a fact that they have a greater chance of keeping their jobs if there is a Pre-pack Administration, rather than liquidation and for customers, if there is no break in the supply or quality of the service or goods being supplied are they really concerned?

The biggest loser in any Pre-pack Administration is of course the unsecured creditor. There can be no greater frustration to unsecured creditors than to see a company that owes them thousands of pounds, close the doors on a Friday only to reopen them again on a Monday with almost the same name from the same premises doing the same thing but legally having no obligation to pay the old debts.

So can a Pre-Pack Administration ever be justified? In my opinion, yes it can.

For example, I am introduced into an insolvent company that cannot pay the wages at the end of the week, the bailiff is knocking on the door and the company is on stop with its key suppliers. The company has no money to enable it to continue to trade and no lender is prepared to advance further funds to allow the company to trade following the appointment of an Administrator, yet there is a business that is worth saving. Therefore, with no funds available, there is no opportunity for a marketing campaign to find a buyer and the owners have indicated that they wish to buy the business back.

In my opinion, the only two options available are liquidation or Administration. Liquidation will result in the immediate closure of the company and lose of jobs for its employees, a loss of a customer for suppliers and a break in continuity of supply for the company’s customers. A Pre-pack Administration avoids all of this and if done correctly, achieves the best price for the business and assets.

So how should a Pre-Pack Administration be done? Well that’s the topic of my next blog in February

These were the introduction of an updated and more comprehensive guide to our ethical code and the introduction of a new SIP 16 (“Statement of Insolvency Practice”), the first since 2005, which is entitled “Pre-Packaged Sales In Administration”.

In recent years unsecured creditors have raised questions over the use of pre-packs – the process where a buyer is sought out and negotiated with for a struggling business before it goes into Administration (Whittards of Chelsea and The Officers’ Club being just two examples). Since the introduction of the Enterprise Act 2002, which simplified the process of a company entering into Administration, these deals have become more widely used. The core idea is actually sound in many ways as it allows an Administrator to sell a business to a party with resources before that business is badly damaged by negative publicity; this is especially true regarding businesses that have suffered badly with cash flow problems, often on a short term basis. Pre-packing also allows a business to change hands smoothly and with greater efficiency than may otherwise prove possible. They have proven to be a low cost method of transferring the businesses and protecting the jobs of the majority of the staff.

SIP 16 has been introduced to provide some guidance to Insolvency Practitioners on how a pre-pack sale should be conducted and what information should be disclosed to the creditors. The aim of SIP 16 is to make the process as transparent as possible and have a more consistent disclosure of information that is reported to the creditors.

I think this is a positive step and will seek to address some of the concerns of creditors. If you would like more information about SIP 16 then please contact me.

S216 of the Insolvency Act 1986 (as amended) in certain circumstances prohibits a director or shadow director of an insolvent company from acting as a director or setting up or being involved in the management of a company that is known by a “prohibited name”, which basically is a company name that is the same name or so similar a name as to suggest an association with the previous company.

This restriction is very important because not only is it an offence if contravened but the offending person can be held personally liable for the debts of the second company should it subsequently fail, owing money to creditors.

On 6 August 2007, amending legislation was introduced that allows a director or shadow director to obtain relief from this restriction by carefully following a selection of procedures within certain prescribed time frames.

The legislation is complicated and a detailed discussion of it is outside the remit of this insolvency blog but what is very important, is that due to the serious consequences if a person does not get it right, professional advice must always be sought where it is proposed to reuse a prohibited name.

We have recently handled the closure of two high profile bars, which were well established, within Leamington Spa. But in reality, and any town that has an over supply of bars and pubs will find that more will be closing in the coming months and I think Leamington fits that pattern.

It is very hard to thrive in a crowded market whatever the sector but especially in food and beverage. It is essential that bars make the most of every opportunity to win business, whether that involves widening their appeal, looking for new markets or changing their offer.

There are bars and restaurants in Leamington which have thrived over many years but they have maintained their quality and sometimes had to change with the times. It takes time for the leisure trade to pick up at the end of any dip and I can easily see this downturn lasting for the next 18 months to two years.

Maybe people will start to take a leaf out of a village pub in Norfolk who are currently getting into the spirit of Christmas by exchanging home-grown produce for beer and pub meals.

Whatever your plans for the festive season, may I take this opportunity to wish all of you a very Merry Christmas and a prosperous New Year.

The net effect of this dilemma is the failure of perfectly good businesses with good potential but a severe cash flow problem. Until they demonstrate differently, the banks are not prepared to cover this funding deficit and therefore business owners are left with the problem of funding the shortfall.

One possible solution is an insolvency procedure that has been with us since 1986 in the form of the CVA. I believe that this procedure, much discredited in the past and rightly so, is now a very good solution for a company with an inherently good business but in need of a breathing space to restructure. Yes creditors may have to take a write off in respect of part of their debt but surely this is better than losing the whole debt if the company were to cease trading.

The CVA has to be carefully thought through and there are a number of problems that need to be overcome. However, I think that in these unique times, the CVA is a real tool in our armoury to help companies fund their cash flow deficits.

We can all recall the joy of seeing the snow fall and settle on the ground and the numb figures as snowball fights raged with family and friends, little thought given to how the infrastructure of general life around would cope.

I see similarities to our current economic problems, we all played in the credit driven playground, enjoying the fun that the freedom of apparently unlimited credit gave us, giving no thought to how all of this credit was being managed or controlled. It is only when the snow turns to slush that we realise that someone has got to pay to clear up the mess.

At Cranfield, we have had the snow mobiles out for a few weeks now and I am afraid to say that I am beginning to see the need to start warming the engine of the snow plough. Speaking to contacts on the front line I am receiving reports that even some of those businesses that had been fairing well are now showing signs of difficulties.

Even if interest rates do reach 2% during next year and Golden Gordon borrows even more, in my opinion we are in for a very difficult twenty four months and all professionals are going to require specialist help when advising clients during the developing blizzard.

The first thing that people say to me, being an Insolvency Practitioner, is “I bet you’re busy?”. I would be lying if I said that I was not. Since the August bank holiday week, I have been receiving more and more telephone calls from my contacts wanting advice either directly or for one of their clients or customers. Is it the case, therefore, to use the words of Private Frazer in BBC’s sitcom Dad’s Army, “We’re doomed, I tell ye!”?

Well not necessarily. This morning, I was at the Coventry Belgrade Theatre for their second annual networking breakfast, hearing about the exciting year ahead for the Theatre and the many and varied productions it has planned for the next twelve months. The mood in the room was one of concern but not pessimism. Yes it is tough and yes money is not so freely available but deals are being done and the wheels of business and commerce continue to turn.

It is still a wonder to me how someone not being able to pay their mortgage on a trailer park in mid state America can affect the whole world economy but that seems to be the case. Let us hope that America can get its house in order to allow the rest of the world business community to move on. In the words of Winston Churchill “The Americans will always do the right thing…..after they’ve exhausted all the alternatives”.

Well in part, people have less disposable income and they are cutting back and the knock on effect is that both charities and clubs do not receive enough financial support. However, I believe the main reason is finding people who are willing to help out for no remuneration, who have the right skills needed to do so – such as financial and legal skills. Potential volunteers are put off by the fact that trustees can be made personally liable for the losses of a charity in certain circumstances.

Strictly, this is because charities formed as unincorporated associations or trusts have no legal identity that is distinct from their trustees. One possible solution is to change the charities structure, turning it into a limited company. The main advantage of this is that a company is a legal entity in its own right and can contract in its own name, which means the potential liability of the directors (the trustees) can be limited, providing they are neither negligent nor act in breach of their duties.

The Charities Act 2006 created a new sort of company, specifically for charities, called the Charitable Incorporated Organisation (CIO), which is shortly to be made available. The Act also provides a method which will make it easier for smaller charities wishing to cease operations to transfer their funds to other charities and wind themselves up.

The trend suggests that the next 18 months will not be easy for charities as the availability of funding reduces and compliance costs increase. If you require further information on this topic or know of a charity in difficulty then please email me at brett.barton@cranfieldbusinessrecovery.co.uk

I see the consequences of fundamental changes in individuals’ financial standing every day and even after all these years, I am still amazed how, in general, people cope with the significant changes occurring in their lives as a result of financial problems.

A couple of weeks ago I met with a husband and wife who had lost their company and as a result of the personal guarantees that they had given, had to move out of their home into rented accommodation and file for their own bankruptcy. The positive approach they took to their changed circumstances was refreshing to see and I wish them well for the future.

As the economic downturn continues, I will be seeing more and more individuals facing both corporate and/or personal insolvency and not all of these individuals will be as philosophical or positive as the couple above.

As an Insolvency Practitioner I have a job to do, however, the events in Shropshire reinforces my belief that the job has to be done with an understanding of the ramifications the decisions I take will have on the lives of others.

In certain circumstances, directors can be disqualified by the Secretary of State from acting as directors. These include:

• misfeasance or breach of their fiduciary duties. This may be as a result of either mismanagement or a director being convicted of an offence connected with a company;
• where the company becomes insolvent and the conduct of the director is such that it renders them unfit to be a company director;
• where a director continued to trade with no real prospect of the financial circumstances of the company improving, resulting in an increased loss to the creditors;
• where the company consistently defaults in filing documents with the Registrar of Companies; or
• where the Secretary of State views it is in the public interest for the director to be disqualified.

It is important to note that this includes anyone who acts in a directorial capacity (whether their title is director or not) or who is on the board of directors of a company, such as a non-executive director. Disqualification can last up to 15 years in the most severe cases.

In these uncertain times, a director will have to be more vigilant when making critical decisions that will ultimately affect the future survival of the company, especially as a director is now more accountable for his actions!

Please feel free to contact me on 02476 553 700 if you would like further information relating to this Insolvency blog.

Being a keen golfer, I was fortunate to be able to go to the British Open and the opportunity to see the professionals play the game properly. On the Tuesday practice day, the sun was shining and the winds were a mild 20 mph and the players were in jovial mood and peppering the fairways and greens for fun. However, when it came to the actual tournament, we saw on the television, the wet, miserable, extremely windy and generally bad conditions the professional had to endure. It was magical to see Greg “the shark” Norman playing with aplomb in these trying conditions, showing that experience counts for a great deal.

But why is this relevant to running a business you may be asking? The answer lies with the approach taken by Greg Norman. It is very trying out there for businesses at the moment with many adverse economic pressures but, like the weather, you can’t change the conditions but what you can do is change your “game” to suit the conditions.

It’s a time for all company directors to keep their finger on the pulse. Although you may be going through a tough time and not doing as well as you may have hoped, look around you and you may find your competitors are doing far worse. Stay focused and be prepared to adapt your strategies using good reliable management information. Do not be afraid to seek external advice, even professional golfers rely on their caddies to achieve success.

I would like to remind all our business partners that here at Cranfield Business Recovery we have the caddies to make a difference and provide practical advice to challenging situations. If you have a matter you would like to discuss, all our initial meetings are free and we would be happy to sit down and help find a solution. Please feel free to call Tony or I on 02476 553700.

We enjoyed a warm sunny evening and guests were able to venture out of the marquee and into the gardens to enjoy the last of the day’s sunshine.

I am constantly impressed at the quality and depth of knowledge and experience of the Coventry and Warwickshire business community and in particular the efforts the City is making to regenerate itself as traditional industries and jobs move to other parts of the globe. The City and the County have a real opportunity to develop new skills and new talents and with the level of inward investment that is being attracted to the region, the future looks bright, even through the current economic downturn.

Much of the talk last night was about the daily bad news that is being reported but the general consensus of those present was that many clients are finding things tough but they are managing. The obvious exception to this is those connected to the construction and residential homes sectors, where clearly things are very difficult.

I think everyone is agreed that as Insolvency Practitioners we are going to get busier as the year progresses and we have increased the team size in readiness for the upturn in the need for our services. How much busier we actually get is uncertain but I for one do not believe that we will see a return to the volumes of corporate failures that we saw in the early 1990s.

The request seemed timely and therefore I reproduce below my top three Turnaround Tips for companies during these testing times;

1. Cash is King

Controlling the cash is top of any turnaround assignment. Collect in as much as possible as fast as possible and reduce outgoings to an absolute minimum whilst taking a more detailed look at the business.

2. Accentuate the Positives

All companies are good at some aspects of their business. Identify what a company is good at and concentrate on that and in the process identify what it is not good at and look to drop these activities.

3. Planning and Information

Directors wouldn’t drive with a blacked out windscreen, so why do they try and run a businesses without a business plan and forecasts. Plan the immediate and medium term future, set targets and monitor actual results against those targets.

If you would like to know more about the publication in which these tips appeared or would like a copy of the article with the full list of ten tips please contact me.

Cranfield Business Recovery BBQ

Finally, the invites for this year’s Cranfield Business Recovery BBQ, which is held on Tuesday 8 July 2008, have now been sent out. If you haven’t received your invite, please get in touch.

I thought it quite timely to provide our blog readers with an update from the Cranfield Business Recovery perspective. This comes at a time where the latest insolvency figures released by The Insolvency Service show corporate insolvency for the first quarter of 2008 has increased by 14% compared with the last quarter of 2007 and 11% on the same quarter three months in 2007.

A review of the insolvency notices published in the Coventry Telegraph in the last eight weeks indicates that sectors such as local pubs/bars, transport and retail are struggling. Certainly from the insolvent companies that Cranfield have dealt with in the last eight weeks, I would agree that transport, retail and construction are starting to show real signs of distress.

The reasons why have been widely reported including:

• Increasing cost of petrol/diesel and the forthcoming increase of 2p per litre in October.
• The retrospective increases in Vehicle Excise Duty (VED) to all new vehicles purchased since March 2001, with the top band now being £400 per year.
• Significant increase in energy costs for electric and gas.
• Inflation (CPI or consumer price index) has risen to 3%, mainly due to increases in food and energy costs.

I believe that the economy is going through a period of distress as companies fight to stay in business and beat the economic pressures that they face. This could be by prudent planning, rationalisation of costs, diversification or any other measures needed to help maintain a good level of profitability. However, if the market conditions worsen, companies may not be able to continue to survive and could be facing a period of default.

The best advice we can give to directors is to get early advice, either from your accountant or Cranfield Business Recovery. Taking this step maximises the options available and will give companies the best chance of potentially avoiding an insolvency scenario.

The rise of the IVA factories in recent years has focused attention on the mis-selling of what for many can be a very useful procedure for sorting out financial problems. The difficulty is, however, nobody knows what is actually going on. I am sure the IVA factories know how many of their IVA’s reach full term – but they are not saying.

For a number of years now as part of my annual application to the ACCA for my Insolvency License, I have had to report the number of IVA’s I have put in place over the last year and how many IVA’s have failed in the first 12 months.

What is happening to this information and why is it not being made public so that the users of the procedure, i.e. debtors, can truly understand what is the percentage chance of them actually completing a successful IVA and avoid bankruptcy?

IVA’s are a good thing for certain debtors but it is time that the Insolvency profession and the regulators in particular, woke up to the fact that without proper information about success rates, IVA’s will continue to be mis-sold to vulnerable debtors, to the detriment of not only them but the Insolvency profession as a whole.

Recently Cranfield Business Recovery undertook a client survey and wrote to a random cross section of the company directors we had worked with in the last 12 months. The results were re-assuring and reinforce our beliefs that our clients are satisfied with the level of service that we provided to them and more importantly, we delivered the promises made at our initial meeting. You can find more information about the survey and the results under the about us section of this website.

The message then is clear. At a time when your clients may be looking to cut costs and increase their profitability, it is important to deliver the service that you think you provide and to remember the old adage, the customer is always right. Therefore it is important to regularly speak to your clients and to understand their needs.

Swapping your ‘Intray’ for your ‘Inbox’ is something we are seeing more and more. Most of us are now familiar with the common tagline at the bottom of your emails asking people ‘Not to print this e-mail unless you really need to’.

The local community seems to have embraced this message with The Coventry Building Society asking its members to go online and submit their vote in preparation for their annual meeting with not a ballot slip in sight. Furthermore, The Herbert Art Gallery in Coventry is pioneering new ‘digivey’ machines that enable their visitors to record all their feedback and comments on state of the art, interactive, touch-screen stations. Business it seems, can be done by the touch of a button. (But perhaps not insolvency yet; looking at the amount of paper in my intray)

Saving money is obviously of the utmost importance to any business and cutting down on waste is both business and environmentally friendly but could Britain really work as a completely paper free nation?

In a business world where daily news is now emailed to our inbox, surely the demise of printed stationary and print media is likely to have a knock-on effect to these businesses somewhere along the line? But for now Britain seems happy to be doing everything we can to make the cut backs. So, as they say, can the last one to leave the office please switch out the lights?

It was a follow up to my “appearances” on the Bob Brolly show and the breakfast show with Liz Kershaw, talking about the threat of Administration that hung over Coventry City FC earlier this year.

I suggested that it might be helpful if the BBC put on a workshop for local business professionals and budding radio stars who wanted to put themselves forward as experts in their particular fields to be available at short notice to comment on topical issues as they arise.

The idea went down well and I would love to hear from anyone who would be interested in taking part.

On a separate issue, the feedback I am getting from accountants and bankers that I speak to, suggests that it is getting tougher for their clients and customers but at the moment, matters are being managed.

I think we are on a knife edge as to which way things are likely to go in the coming months. What is certain, however, is that it is going to require a lot more hands on management and assistance by professional advisers if we are not to see a significant increase in business failures in and around the Midland’s area. The gauntlet has been thrown down and it is for the professional advisers to respond – go to it!

In most aspects of Insolvency, in the last couple of years we have seen a number of specialist offices being expanded and developed; with a VAT insolvency unit in Liverpool, insolvency claims handling unit in Newcastle Upon Tyne and a direct taxes unit in Worthing. This is in addition to the Insolvency Compliance Unit (Revenue) and Debt Management Units (VAT) that were already in existence.

In my experience, it seems that the powers of HMRC are being flexed more and more as we see a continued crackdown in certain areas of business. This started with the Bona Vacantia solicitor take a firmer stance against s.652 cases and the need to apply for relief under Extra Statutory Concession 16 (“ESC C16”).

You may not be aware but on 1 April 2007, HMRC created a new team called Insolvency Compliance & Securities (“ICS”). The primary aim of ICS is to reduce the losses to the Exchequer as a result of insolvency and it intends to focus on directors who use the insolvency process as a means to avoiding or evading their tax and duty liability. The leader of the team, Bob De Croos, has confirmed that the team will not “shy away from pursuing directors under the Insolvency Act, ss.216 and 217 or issuing personal liability notices on directors in appropriate circumstances.” How the ICS team will decide when and if to intervene remains to be seen but we have noticed a firmer stance by HMRC to fund actions against directors in insolvency scenarios.

Both Tony and I will be hosting a series of seminars this year aimed at providing our business contacts with an overview of key insolvency topics. We would like to give you an insight into the responsibilities of an Insolvency Practitioner and some helpful guidance and preventative tips that you can pass onto your clients.

If you would like to attend these seminars please contact Natalie who will register your interest and ensure that an invite is sent to you in due course.

So it appears that we are now all going to own a bit of Northern Rock and must it mean, therefore, that by logical extension, we all become supporters of Newcastle United FC, as Northern Rock is one of their principal sponsors. I note that the Club Shop is already giving a 25% discount on the Home Strip, so grab a bargain whilst you can – they may soon become a collectors’ item.

Lessons have already been learnt from this situation:
Firstly, the regulators of banks need to pay far greater attention to the management of liquidity;
Second, the UK deposit insurance system needs to be more generous, and;
Thirdly, the UK must have a special insolvency regime for troubled banks that guarantees insured depositors’ immediate access to their money.

The question still to be answered is shareholder compensation. There appears little sympathy for the large hedge funds that waded in after the first announcement of the troubles and in respect of all shareholders, there is no obvious reason to compensate them at all.

What would have happened if the Government had not been willing to provide the finances to support the business after the private sector refused to offer? The answer, Administration. It is extremely unlikely, after repaying the Bank of England funding support, that the shareholders would then have ended up with anything and therefore I am afraid that many smaller shareholders have learnt what all accountants know – Share Capital is Risk Capital.

This story has a long way to run and the uncertainty for many, particularly the bank’s employees, will continue for some time yet.

Tony mentioned in his blog of 9th January that the issues surrounding retention of title rumble on. This became topical, as yesterday I received a phone call from a distressed client of a local contact. One of their major customers had gone into Administration and he was worried about the large amount of stock that had been supplied which had not yet been paid for. As part of the services that we offer, we were able to assist the client in their communication with the Administrators and helped them to recover the stock in question. Fortunately for the client, his paperwork was up-to-date and he had followed some of the key principles in making a successful claim for retention of title.

Here are a few key pointers to follow:

• Review your trading terms and conditions. Do they include a comprehensive “all monies” clause?
• Ensure that before you supply any goods to a new customer, a new account opening form is completed, which requires them to accept your trading terms and conditions. This should be signed by an authorised person only, such as a company director.
• Is your stock readily identifiable? Do you use packing labels or a unique colour/type of packaging? Are you able to trace and cross reference a batch number to a delivery note and then to a specific invoice?
• If the goods are of high value, consider cross referencing a serial number of a machine to a specific invoice.

Now would be a great time to remind your clients to periodically review their working practices. If you would like any further information on the topic of retention of title, please feel free to give me a call.

There is of course no simple answer to corporate turnaround and every case is different, although each turnaround assignment has essential core elements and it is these core elements that I have concentrated upon.

And here they are, each in forty words or less:

Cash is King
Controlling the cash is top of any turnaround assignment. Collect in as much as possible as fast as possible and reduce outgoings to an absolute minimum whilst taking a more detailed look at the business.

Accentuate the Positives
All companies are good at some aspects of their business. Identify what a company is good at and concentrate on that and in the process identify what it is not good at and look to drop these activities as quickly as possible.

Planning and Information
Directors wouldn’t drive with a blacked out windscreen, so why do they try and run a businesses without a business plan and forecasts. Plan the immediate and medium term future, set targets and monitor actual results against those targets.

Next week I may tackle the Complete Works of Shakespeare in less than 400 words.

George Bush’s promise last week of a US$70 billion package of tax cuts to attempt to stimulate the US economy has largely been viewed as being too little too late. With the real fear of a US recession looming large, the central bank yesterday slashed interest rates by an unprecedented three quarters of a point in an attempt to prevent the US economy falling into recession.

As the maxim goes, when America sneezes, the UK catches a cold. Monday this week was aptly christened “Miserable Monday” with the UK stock market experiencing the largest one day trading loss since 9/11 and the worst start to a New Year since records began.

Acute pressure is already being brought to bear on the Bank of England to slash interest rates and with inflationary pressures still evident in the economy the effects of the credit crunch appear to be worsening as bank lending tightens further.

Brett in his blog last week made reference to the need for owner managed businesses (“OMB”) to be more financially aware than ever before and the necessity for active business planning. This is solid advice to those who have already implemented this strategy or have sufficient time in which to make this work for their business.

However the suddenness with which credit facilities have become restricted in today’s marketplace may already be causing the clients of accountants and business advisors cash flow difficulties.

As a firm of insolvency practitioners, dedicated to assist those in such circumstances, it is important that such individuals and OMB’s explore the options and protection rights available to them under the Insolvency legislation. And as with most things in life, the earlier a problem is tackled, the better the chance of finding a workable solution!

Accountants and business advisers need to be actively advising their owner managed business (“OMB”) clients to be more financially aware than ever before, as they see their profit margin squeezed due to these rising costs. How many businesses do you come into contact with where they have a cash flow forecast for the next twelve months?

By way of an example, I recently met with a client who was suffering from financial difficulties. It was an OMB and turnover was approximately £1.5m. Whilst they were suffering from cash flow difficulties, they believed that they had a profitable core business. I suggested that they prepare a cash flow forecast before they took the decision to hive out the business into a phoenix operation. The client was shocked by the results and it showed that the profit margin was only 7% (they thought it was approximately 15%). It also demonstrated that a significant injection of working capital would be required to fund the initial two months of trading. As a result of preparing the cash flow forecast, the client realised that pricing had remained static for two years and they had allowed customers to elongate their credit terms to past 90 days!

In my opinion, had they undertaken a review of their business and prepared cash flow forecasts two years earlier, they could have made changes to their business to avoid facing an insolvency procedure.

This example shows the value of qualitative information and the need for active business planning. It is also an area where accountants may offer additional services to their clients as they assist them to evaluate and prepare the financial information.

We haven’t heard very much about ROT in recent years but in the case of CKE Engineering Limited, the High Court recently confirmed that it is possible for a seller to retain title to goods even where those goods have had their physical state changed and been mixed with other goods of the same description.

I will not trouble you with the details of the case other than to say it involved the mixing of zinc as part of galvanising metal and in his opening remarks, the Judge commented ‘The one thing that is clear in this case is that it is extremely difficult to make money by galvanising metal fabrications’.

CKE claimed title to zinc it had supplied which had subsequently been mixed with other zinc and therefore the generally accepted view had been that its identity had been lost and therefore any ROT claim would fail.

The Judge however upheld the claim of CKE. The key principles on which he relied were:
1. Whether the goods are still identifiable is a question of fact and degree in each case; and
2. Where goods are mixed by agreement, the owners have an interest in the bulk in proportion to their respective contributions.

This judgment is very fact specific but it shows that the “mixing” argument, often used by Insolvency Practitioners, may not always be the knock out argument it was once thought to be as it is now clear that in certain circumstances, it does not matter that it is not possible to distinguish between one part of stock supplied and another stock, because each party can retain ownership of a proportion of the whole.

This really is one of those cases that you can pull out of the hat when a client next contacts you about a Retention of Title problem about a customer failing owing them money.

In order to exist within SL you first need to create a virtual ‘me’. These virtual characters, or avatars, are the physical representation of people in SL and can be styled to mirror, or in some cases contrast, your real life appearance.

With the temptation to pander to the human frailty of vanity, my avatar resembles more of my George Clooney features in its appearance than say my likeness to Mr Bean. My avatar is completed by assigning him a name; Eamon O’Driscoll being the more appropriate of the selection available.

It was then time to research how to start setting up a virtual business. Mirroring the real world, I was looking at how to find suitable premises and whether it was possible to buy or rent. As with most businesses, location is important and this appears to be no different within SL. After some further searching I finally ‘teleport’ Eamon to CPA (Certified Public Accountant) Island. This appears to be where the financial services of SL operate from but I am still at the initial stages of my research.

On CPA Island, the first business that I come across is KAWG&F, in the real world a Maryland USA based accountancy firm. Upon entering their business premises I immediately receive a screen pop up invitation or ‘note card’ linking me to their website.

Their virtual office sports a modern office interior with external parking and the website link apparently promoting the firm in its virtual and real world endeavours. It looks like the site is also used as a means to recruit new staff (does this mean that virtual recruitment agencies are on the agenda!!).

However, an initial search of the site for a dedicated insolvency presence showed no results. I found this somewhat surprising as it appears that there have been some insolvency issues already within SL.

Having taken the initial steps into this new world, I decided to content myself that Eamon is now ready to research the next stages of establishing a business presence, presumably not to forget what personal adventures and exploits may lie ahead for him. In my next article I hope to explore how Cranfield can perhaps continue down the road to establishing a virtual office.

Although the word “insolvency” is often avoided by most in passing conversations at these events, the continued press coverage of the credit crunch and the doom and gloom for the economy, people are interested to see what our experiences are. Often I receive comments that as Insolvency Practitioners we must be bracing ourselves for the stampede of new work that it is about to adorn us! Perhaps there will be an influx of new insolvency work in January but I have to say, that during 2007, Cranfield Business Recovery has undertaken a record amount of restructuring work, working closely with accountants and tax advisers. It seems that successful businessmen are looking to extract maximum wealth from their companies, especially with the capital distribution tax rate set to increase to 18%.

In my opinion, I believe that this demand for restructuring will continue into the first quarter of 2008, although many business sectors will be bracing themselves for the backlash of the downturn in the economy. Not often said by an Insolvency Practitioner, but lets be optimistic and look on the bright side!

From Tony, Patrick and I, we wish all our friends and business acquaintances a merry Christmas and a prosperous New Year.

I hadn’t and he asked if I could explain to him what it meant. I was interrupted before I could finish my first sentence “Can I stop you there” he said “will you tell my listeners what it all means at the end of the record that is currently playing?” “Of course” says I and spent about six minutes in conversation live on air talking to Bob about what it all meant. He seemed pleased.

Next morning I was in the BBC radio studios, opposite our offices in central Coventry, talking to Liz Kershaw on the breakfast show on the problems at the Club.

The point of this little anecdote is that as an Insolvency Practitioner, I have to be prepared for all eventualities and the job is as much about personal experiences, built up over more than 21 years, as it is about knowing section numbers of the Insolvency Act.

Every time I receive a new instruction, I know it will be unique. It is not about reaching for a text book, what I do, they do not put in books. Experience is what counts and the confidence to know how to handle situations from the very sensitive to the sometimes physical.

SL is a virtual world which mirrors our real world and amongst the various activities of its customers is the ability to conduct business transactions in an attempt to generate wealth, happiness and profit.

Already some firms within the accountancy profession are using this medium to advertise their wares with a view to recruiting staff and offering accountancy based services, although the latter appears to be still in its infancy.

SL has its own currency, the Linden dollar, its own stock exchange and the ability for its customers to convert Linden dollars into US dollars. At present the current exchange rate is around LL$265 for US$1. I understand that Anshe Chung has become the first online personality to achieve a net worth exceeding one million US dollars from profits entirely earned inside a virtual world.

As you can imagine this has caught the interest of the tax authorities in the US as well as our Darling at the Treasury who no doubt may need to bolster his short term cash flow reserves in light of the Northern Rock issue.

Money and commerce, either real or perceived, generates profits and losses thus providing scope for accountants and insolvency practitioners, virtual or otherwise, to operate. So on behalf of Cranfield Business Recovery I have decided to research this brave new world in an attempt to understand where the technology of the new generation may lead both the accountancy and insolvency professions and will report my findings in future articles.

But don’t tell Darling what I am up to – he may only seek to tax my virtual efforts at earning a living.

In the last four years the amount of legislation that has been issued relating to the insolvency sector has been significant and in my view burdensome. We have seen the introduction of…

The Enterprise Act 2002
The Money Laundering Regulations 2003 (recently revised for 2007)
The Proceeds of Crime Act 2003
Pensions Act 2004
Companies Act 2006

… but to name a few! A quick glance at the OPSI website shows that during this year alone 3,328 pieces of legislation were issued (including Acts and Statutory Instruments), a slight reprieve from the 3,570 items issued in 2006. Dare I even mention the impact of the European Regulations?

It doesn’t take a legal expert to recognise that this is happening in all business sectors and not just insolvency. We spend a significant amount of time complying with the ever changing legislation and are hindered from getting on with the job in hand, realising the assets of a business and maximising the return to creditors. In my view, the burden of compliance only serves to reduce the eventual return to creditors. As per the title of this week’s blog, red tape should only be used to wrap presents, not to bind all the business sectors in endless paper shuffling!

It is in response to the growth in IVAs that TIX have recently introduced a “standard” proposal with a number of set criteria that must be met, the most challenging being in some instances, a minimum return of 50p in the £.

My main concerns with these recent changes are that many individuals, who are in financial trouble and are faced with the option of becoming bankrupt or entering into an IVA, have had the bar raised to a level that the IVA v bankruptcy choice has been taken away from them.

I recently acted as Nominee for a debtor who had a failed business and her proposal for an IVA allowed for a return to creditors of 12 p in the £ compared with 4 p in the £ in bankruptcy. The financial institutions involved rejected the proposal as it did not meet the “standard” criteria, including their hurdle rate and the debtor was forced into bankruptcy.

This example is a testament to my concerns of the personal insolvency market whereby a set of standard tests are applied to scenarios which are inherently different from case to case, resulting in a worse outcome for both the debtor and creditors.

Until recently the public would have given little thought to terms such as sub prime mortgages, parcels of debt being traded between banks and a credit squeeze. But Northern Rock changed all that. The first run on a British Bank for over 100 years, witnessed by every householder in the country on their television screens, has suddenly caused the general public to wake up to the real concept of financial risk.

Working in corporate recovery and insolvency for over 20 years, I have witnessed the full spectrum of peoples’ attitude to risk and the consequences of getting that risk assessment wrong.

Some bankers I have been speaking to in the last few days have been telling me that publicly institutions are portraying an air of calm although admitting uncertainty. However, privately they believe that there is a lot more disclosure to come about the true positions some of our largest financial institutions find themselves in and I believe, that as a firm of insolvency practitioners, we are going to get very busy in the new year.

I have been around long enough to have heard many prophets of doom in the past but this time, I think there might just be some substance behind the prophecy. If it is the case, then now, more than ever, clients will need their professional advisors and are going to have to understand that access to credit in the coming months will be a whole lot harder to obtain and more expensive.

I was recently appointed as Administrator of an established family run builders’ merchant in Leicester and within the first few days of my appointment I was successful in finding a purchaser for the assets and securing the future employment of the ten members of staff. The “deal” meant that the secured creditors would be paid in full and as the employees were transferred to the purchaser, there were no employee claims opening the door for a possible dividend to unsecured creditors.

Shortly after issuing my first report on the progress of the Administration, I received a number of queries from creditors and the general feeling was great you saved the employee jobs but I’m still not going to get any money and hence the title of this blog!

I look at the alternative scenario; the business closes, the assets are sold at auction for a reduced amount and the employees are made redundant! The unsecured creditors would still not receive a dividend but more importantly, the business has gone and they have lost a potential customer.

In conclusion, as an Insolvency Practitioner I’m often left to make the best of a bad bunch but please don’t deny me the pleasure of striving to make a difference.

So what might The Sky Blues face in Administration? Well to start an automatic 10 points deduction which as things stand at the moment would see them sitting bottom of the Coca-Cola Championship League alongside Norwich City with 8 points. There would also be the creation of the “Football Creditor”, a specific group of creditors who are owed money and have been given super-creditor status under the Rules of the Football Association and consists of just about anybody directly connected to the game of football including employees of the club, and the various football associations. They have to be paid in full and everybody else has to take their chances.

And what of Iain Dowie, would he stay or would the speculated move to Leicester become a reality? It is inconceivable that Coventry City Football Club would not survive Administration, and that the City will still have its famous football club but who will own it and in what league will the Club be playing is currently an unanswerable question.

For the good of the Club and for the City, let us all hope that the current Board can be decisive in its decision making and work with the local Council and the Higgs Trust to secure a buyer with the funds to invest in the future of the Club.