What a wind up

Increase in number of firms being wound up by creditors

Insolvency statistics published today by the government’s Insolvency Service reveal that there has been a sharp increase in the number of firms being wound up by creditors in the past three months. The number of compulsory liquidations, where a creditor asks the courts to close down a business due to non-payment of debts, increased by nearly 20% compared to the previous quarter.

This looks like a worrying trend, showing that many firms are struggling to pay their way in the continuing economic gloom. Creditors are becoming impatient – many will be suffering with their own financial problems - and they are increasingly prepared to follow through on threats to wind up businesses that cannot afford to pay their bills.

Whilst it may be tempting to keep making promises of payment to creditors, when those promises are broken, the consequences can be catastrophic. The good news is that there are ways of dealing with mounting debts that will allow the company to continue and the sooner that a business owner takes advice, the more palatable the options that are available.

In particular, a Company Voluntary Arrangement (CVA) can be put in place with the help of a licensed insolvency practitioner to protect the company from legal action whilst a turnaround plan is followed, allowing a company to recover from its cash-flow problems. In recent months, Moorhead Savage has set up three CVAs for businesses in the Sheffield City Region, safeguarding dozens of jobs in the process.

If you would like to chat about how we can help your business, call me today on 01709 331300.

Shops 'til they drop

What has caused the sudden wave of retail insolvencies?

It has been a bad few days for retailers. A number of well-known names have succumbed to the effects of the retail slow-down, with Jane Norman and Habitat appointing administrators, TJ Hughes reportedly on the brink of entering administration and an announcement from chocolatier Thorntons that they intend to close up to half of their high street shops.This has come in the wake of retail figures for May that showed sales had slumped by 1.4%, reversing an increase of 1.1% the previous month.

Many retailers have been struggling for some time to keep their heads above water, with shoppers choosing to put off major purchases in the face of increasing economic uncertainty. Increasing food and fuel prices have hit consumers hard and many are concerned about job insecurity. The easy availability of credit that stoked the high street spending boom of the last decade is long gone. Shops have suffered from poor cashflow and slim margins, particularly where they are servicing high levels of borrowing.

But why the sudden wave of insolvencies? Traditionally, landlords collect rental payments from their tenants on a quarterly basis, in advance. The end of June sees another 'quarter day' when many retailers' rents will fall due for payment. With little opportunity to re-let shops to new tenants, landlords will be tempted to enforce harshly the terms of their existing leases, to prevent a melt-down of rental income. However, if landlords fail to work with their tenants when times are hard, they face the possibility of losing their tenant altogether if the tenant becomes insolvent. By using an administration procedure, struggling retailers are protected from their landlords taking action to lock them out whilst a new buyer is found, and a potential purchaser will often have the upper hand in any negotiations over future rents.

And what effect will this have on suppliers? When large firms become insolvent, they often leave many small suppliers high and dry, with little or no prospect of repayment. This can have a knock-on effect on their viability, and I'm afraid that many smaller businesses may be hit hard by the failure of these high street names.

But as always, the message is that help is at hand, and the sooner that advice is sought, the more palatable the options will be. Just because a major customer has let you down, it doesn't have to mean the end of your business as well. Call Paul Moorhead of Moorhead Savage today on 01709 331300 and find out what we can do to help.

Missed the tax deadline? It isn't the end of the world but act quickly

£90m penalties windfall for HMRC for late tax payments and tax returns

If you have missed the 31 January deadline for filing your Self Assessment Tax return, you are in good company. You are one of 9 million people who has yet to file their tax return for 2010-11. HM Revenue and Customs are looking forward to collecting around £90m in penalty fees from people who have filed their self assessment tax returns and/or paid the tax due after the 31 January deadline.

But don't be disheartened  - act quickly and you can avoid the situation getting any worse. The penalties charged by HMRC for late filed returns and late payments of tax rise as the delay increases, so if it's simply a question of an oversight, get it in ASAP and you'll save yourself some hard-earned cash.

And the good news is that if you have a 'reasonable excuse' for missing the deadline then you won't have to pay any penalty. But the bad news is that HMRC is unlikely to consider excuses relating to forgetfulness, the consumption of documents by pets, or delays due to overseas excursions, to be 'reasonable.' The rather short list of examples on their website includes documents lost through theft, fire or flood that can't be replaced in time, life-threatening illness, for example a heart attack that prevents you dealing with your tax affairs and the death of a partner shortly before the deadline.

If, however, the reason for the delay is that you know that you cannot afford to pay the tax due on last year's trading, then there is good news. By filing the tax return, even if the tax is unaffordable, you are then in a position to negotiate with HMRC for a 'time to pay' agreement. As long as your returns are filed up to date and you have a reasonable record of compliance with the tax authorities, you can put forward a repayment proposal. HMRC are generally willing to discuss sensible repayment plans, particularly if you approach them at the earliest opportunity.

If tax debts are part of a wider debt problem, it may be that a Voluntary Arrangement is the answer. These come in two flavours - Individual Voluntary Arrangments (IVAs) and Company Voluntary Arrangements (CVAs) depending on whether you trade through a limited company or are a sole trader. VAs of either variety can be a good way to solve cashflow problems and HMRC have a specialist department which deals with IVAs and CVAs, so they know what to look for in a well thought through proposal.

We have lots of experience in dealing with debt problems involving HMRC, so for expert, impartial and confidential advice, call us today on 01709 331300.

More help for troubled companies?

Government consults over 'restructuring moratorium'

The Government has announced proposals for a restructuring moratorium to protect companies whilst a rescue plan is put in place to help save businesses and preserve jobs.  A moratorium is basically a protected ‘breathing space’ during which no action can be taken against the company by its creditors. The moratorium is aimed at companies where the underlying business is fundamentally viable but because of the prospect of future insolvency or financial distress there is a need to protect the business from creditors whilst some restructuring is carried out. The moratorium is proposed for use alongside the existing Company Voluntary Arrangement or Scheme of Arrangement procedures.

The proposals provide for a moratorium which would last for three months, which would commence following a court hearing at which creditors could be represented. The company would continue to operate under the existing management and directors however they would be bound by a set of obligations and potential sanctions for misuse of the procedure. A licensed insolvency practitioner would be involved at key stages to help safeguard the interests of creditors and other stakeholders.

I welcome this consultation as I have been an advocate of this type of moratorium for many years. The CVA procedure is often frustrated by the lack of any effective moratorium – although a moratorium is technically available to qualifying companies that are proposing a CVA, the requirements are widely considered to be so onerous that they are seldom used by IPs. This is in stark contrast to the Interim Order that is available for debtors who are proposing Individual Voluntary Arrangements (IVAs) where rapid and straightforward protection is available to allow a breathing space whilst an IVA isformulated and put forward to creditors.

The consultation ends in the middle of October so I eagerly await the Government’s response. This could be a timely measure which could have a real impact in terms of saving businesses and jobs.

How to avoid insolvency in the first place: #1

A well-organised business is a successful business

In my years as an Insolvency Practitioner, I’ve found that two things always seem to go hand in hand. These two things are disorganised businesses and insolvency.

We all know that there is a long list of things that we’d all like to get round to doing, but we just haven’t got the time. Some things fit into the category of “nice to do but not essential.” So it would be nice to buy a new plant for the office, or replace the broken clock that is always 15 minutes slow. But these things don’t really damage a business. There’s no need to lose any sleep over them.

But some things are critical and if they get forgotten, the wheels will start to fall off and everything will end in tears. Whether it’s taxing the company van, making sure that invoices are paid on time and decent bookkeeping to make sure that everything is properly accounted for, some things just have to be done. The problem is that it’s easy to concentrate on doing the business, rather than running it.

Happily for smaller businesses, help is at hand. There’s no need to take on extra members of staff as there are a number of excellent virtual assistants, part-time bookkeepers and office support professionals, who can make your life a lot easier. They can spend as much or as little time as necessary, either working in your office or theirs, making sure that all the little (but crucial) things get done. So whether it’s answering the phone in a professional manner, organising mailshots to potential customers or day-to-day bookkeeping, there are plenty of people to turn to.

Try a web search for virtual assistants in your area - or, if you prefer, I can recommend some for you to consider.

http://www.moorheadsavage.co.uk/