Account Preservation plans in aspic for now

Government opt-out safeguards UK rescue culture

The Government has announced that it will opt out of European Commission plans to introduce a cross-border debt recovery tool that would have damaged the UK's business rescue culture. The European Account Preservation Order (EAPO) would have given courts anywhere in the EU the power to freeze funds in UK business' bank accounts without warning. R3, the leading insolvency trade association, had criticised plans to introduce the EAPO on the basis that it would give individual creditors the power to jeopardise the chances of business turnaround by starving companies of cash when they need it most. The UK is widely considered to be at the forefront of business turnaround and rescue and it was feared that the loose drafting of the EAPO would stifle attempts to rescue companies, leading to lower returns to creditors and damaging the wider economy.

The Government opt out is not a surprise as the Commons Select Committee on European Scrutiny had flagged up concerns regarding the EAPO during the summer. The Committee noted that, "Although the Government supports the principle of an European Account Preservation Order, we understand from recent communication with departmental officials that the Government thinks the text, as currently drafted, goes too far in favouring the rights of creditors at the expense of debtors." In particular, it was felt that there was insufficient requirement to demonstrate that there was a risk of assets being disposed of or concealed, meaning that applications could be made regardless of whether the situation merited the use of the EAPO.

This looks like a sensible approach: it is important to ensure that assets are handled properly at all stages of business recovery. But safeguarding assets must be balanced by the need to ensure that a company has the best chance of being rescued as a going concern, in order to save jobs, minimise the effect on supply chains and trading partners, and maximise the return to creditors.

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.

Interesting times ahead?

Rising inflation raises concerns over interest rates

The UK Consumer Price Index annual rate of inflation rose to 4.5% in April 2011, its highest level since October 2008, according to figures released today. This has led to speculation that the Bank of England may raise interest rates in the coming months, causing more problems for struggling businesses.

A survey carried out by R3 found that many business owners are predicting that any rise in interest rates will have a serious impact on their business, with 7% of small business owners believing that they are likely to become insolvent if interest rates rise to between 2% and 3.5%. If rates climb to between 4% and 5%, the number of businesses at risk increases to 18%. The base rate was 5% in 2007.

The Office for National Statistics reported that inflation rose to 4.4% in February 2011, followed by a slight fall to 4% in March before increasing to 4.5% in April, way above the Bank of England’s target of 2%, which is likely to put pressure on the Monetary Policy Committee to increase rates.

Many commentators have suggested that historically low interest rates have helped to keep the number of business failures artificially low in recent months as debt interest payments are tied to the base rate for many businesses. However any increase in the cost of borrowing is likely to have an adverse effect on cash flow and may be the last straw for many ailing businesses.

Consumers will also feel the impact of any rise in interest rates as the cost of mortgages increases. An increase of two percentage points, whilst still low in historic terms, would add £166 per month to the cost of a £100,000 mortgage.

Rising prices put additional pressure on businesses and individuals, and increasing costs are likely to damage any fragile signs of recovery, adding to the finacial problems of many.

Moorhead Savage has the expertise and experience to help sort out financial problems - even when things seem bleak. For a free, no obligation consultation and an unbiased summary of which solutions are right for you, call Paul Moorhead today on 01709 331300. It's always good to talk.

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.

'Corporate undertakers' become 'company doctors'

Research shows that the insolvency profession is good for the economy

It's great to have some good news about the economy and about the insolvency profession. Research carried out by ComRes, a leading polling and research agency, shows that the UK’s insolvency industry helped to save nearly two million jobs in companies going through insolvency and rescued around six thousand (5,851) businesses last year. In addition, the UK’s Insolvency Practitioners who work on corporate insolvencies spend nearly a quarter of their time on preventing insolvencies rather than dealing with companies that have already gone to the wall.

Hopefully this will go some way towards changing people's opinions of what insolvency practitioners like me actually do. Before I joined the profession, my own experience of dealing with an insolvency practitioner had not been entirely positive. I often think back to that time and as a result I am determined to be the type of practitioner who is focussed on delivering the right advice at the right time, concentrating on preserving businesses and jobs, rescuing companies and keeping people out of bankruptcy where possible and practical.

My goal is to give balanced, impartial advice on all the options, to allow people to make their own informed decision. Business owners know far more about their business than I ever will, so my job is to offer the various tools in my insolvency 'toolbox' and help them understand how they can help deal with debt and insolvency problems in their individual circumstances.

But I can't work miracles. I can't turn back the clock and I can't wave a magic wand. The sooner that I am asked to help, the more options there will be and the more chance we will have in turning things around.

So if you've been worrying about debt but you've been concerned about asking advice from a 'corporate undertaker', why not call me, Dr Debt, the company doctor. My number is 01709 331300 and it costs nothing to have a chat about your options.

Place your bets... airline insolvency speculation gone too far?

Bookmakers offer odds on the next airline to go bust

The effects of the global economic downturn were felt clearly in 2009, not least by the large number of well-known businesses that became insolvent. Over the past 12 months, these have included Borders, Blacks Leisure, JJB Sports and Cobra Beer. More recently, Flyglobespan, Scotland's biggest airline, collapsed when it's parent company went into administration, leaving thousands of passengers stranded. Airlines are particularly vulnerable in a recession, as they tend to rely heavily on discretionary spending and healthy levels of international trade, and a number of aviation businesses have crashed and burned recently. But even in this macro-economic context, it appears to be pretty poor taste to encourage speculation over which airline will be the next to collapse into insolvency, particularly given the chaos and upset for travellers.

Yet it would appear that Irish bookmaker Paddy Power is only too happy to offer odds on the next aviation insolvency. Monarch Airline is the bookie's favourite with odds of 4/1 that it will be the next to go bust and ground it's fleet. Fancy a flutter? You can get odds of 14/1 that British Airways will be the next victim of the credit crunch, or 18/1 that Bmibaby will be the latest to succumb. Virgin Atlantic and easyJet are relative outsiders at 80/1 but it seems that the bookies are putting their faith in God and and Uncle Sam: Vatican Airways and Barack Obama's Air Force One presidential jet fleet are 500/1 and 1000/1 respectively. God bless America!

If your business is having financial problems, I can help. Give me a call on 01709 331300.

How to avoid insolvency in the first place #2

It's all about profit

I get asked to help businesses because they’ve hit (or are heading for) a financial brick wall. Something usually triggers the invitation that I’ve received: it could be that the bank manager is concerned about the way the bank account has been run recently; it could be a threatening letter from a major creditor or even a winding up petition. Whatever it is, it’s always to do with money, or the lack of it. So my first job is to find out what makes the business tick from a financial point of view.

All too often, I am met with blank expressions when I ask for costings, cashflow forecasts and profit-and-loss forecasts. This type of financial information can be collectively referred to as “management accounts” and unless business owners have good management information at their fingertips, they can’t make proper decisions about how to run their business. Business owners often know exactly what their turnover will be for the month or year and they easily reel off figures for how much a particular job or contract is worth in terms of the selling price. But the key issue isn't price - it's profitability. There’s no point being a “busy fool” as one of my former colleagues used to say. That’s why it’s essential to know which areas are profitable and which need to be overhauled, re-designed or scrapped. Almost invariably, it’s far better to make a 10% net profit on a turnover of £100,000 than merely break even or make a loss on a turnover of £200,000. It’s no surprise that businesses who don't have a proper handle on their costs end up with serious or even terminal debt problems.

The problem tends to stem from the fact that businesses are set up by people who are extremely good at their job, whatever that job may be, and who are driven by a desire for the potential benefits of self employment. So a good panel beater, or chef, or IT expert, decides to go into business to offer their expert services to the world. Great. However, that panel beater, or chef, or IT expert may have very little knowledge and experience of actually running a business, which usually requires a completely different set of skills. And even if they have those skills, the need to do the business, beat panels, cook great food or do great digital stuff often gets in the way of running the business.

Most firms aren’t big enough to need a full time accountant or bookkeeper, but the good news is that there are a number of people around who can spend as much, or as little, time as necessary in making sure that the wheels don’t fall off your business. They make sure that you have the information you need to decide how best to run your business and the (usually quite low) cost is usually recovered many times over in terms of better decision-making and enhanced profitability.

Try searching for accountants and bookkeepers in your area. Or feel free to contact me and I will recommend some who I've worked with in the past.

www.moorheadsavage.co.uk