'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.

Ostrich mentality to debt is still a big problem

Sticking your head in the sand will not help deal with debt problems

Research published today shows that many people are too ashamed to ask for help with their debt problems, preferring to ignore them in the hope that they will go away. A poll carried out for 'R3', the insolvency profession's leading association (of which I am a member) shows that 21% of people with debt problems haven't contacted anyone for help because "It's easier not thinking about it" whilst 14% are worried what people will think if they seek help about their debts. In addition, 30% of people with money problems haven't even told their partner or family about their situation.

Unfortunately I see this situation all the time. People come to me when the situation is really desperate, where someone has put off taking advice sooner because they were worried about what people would think or what their partner or family might say. (Sometimes people are even worried about what I would think - trust me, I've seen it all, nothing shocks me any more!)

The old saying 'better late than never' is true and there are things that can be done to ease the situation even when things seem bleak. But the sooner that someone takes advice about debt problems, there will be more options and the options themselves will be more palatable and more attractive to creditors.

So if you are worried about your debts, whether they are business or personal, why not give me a call on 01709 331300. You can meet with me free of charge and I'll help you to find out what all your options are. It's confidential and I promise that I won't judge or be shocked: I'll just try to help.

Budget offers help for struggling businesses

Chancellor pledges more help for firms with unaffordable tax bills

In his Budget speech, the Chancellor of the Exchequer Alistair Darling announced that the Business Payment Support Scheme will be extended for the life of the next Parliament.

Under the scheme, HM Revenue and Customs will agree to requests from businesses to defer unaffordable tax payments in an attempt to safeguard jobs and prevent the damaging effects of high numbers of insolvencies. Since the scheme was introduced in November 2008, over £5bn in unpaid taxes has been re-negotiated by 160,000 businesses employing more than 1.4 million people.

There had been speculation that the scheme would be abolished during 2010 as the Treasury tried to maximise tax revenue as part of the Government’s efforts to cope with the record levels of public borrowing. However, the scheme has been popular and is considered to have been instrumental in saving many businesses and jobs.

However, in a separate announcement the Government has announced that from 1 April 2010 any requests for time to pay agreements for tax debts in excess of £1m will need to be accompanied by an independent business review to demonstrate the long term viability of the business. HMRC estimates that this will affect approximately 1 in every thousand requests.

This announcement will affect few firms but I’ve seen that even small firms are being increasingly asked to provide accounts when requesting time to pay agreements.

If your business is facing unaffordable tax bills, call Paul Moorhead today on 01709 331300 for help and advice. We can help arrange a time to pay agreement with HMRC.

No relief for retirement savers

Government to review debt relief rules

The Department for Business, Innovation and Skills has announced that it will consult on possible changes to the rules concerning a recently-introduced mechanism that provides debt relief to the over-indebted. The Debt Relief Order (DRO) was introduced in April 2009 and is designed to write off unaffordable levels of debt for those who are unlikely to ever be able to afford to repay their debt as they have few assets and very low amounts of spare cash.

Under the rules, the DRO is only available to people who have assets worth less than £300. The rationale behind the procedure is that it provides debt relief for individuals who could never realistically afford to repay their creditors, but for whom bankruptcy is unnecessarily burdensome and expensive.

Debt advisors have raised concerns that the rules are putting the DRO out of reach of a significant proportion of debtors who, whilst having few valuable assets, do have small amounts of pension savings. Although pension funds are usually excluded from bankruptcy, the term "assets" was not clearly defined in the DRO rules and it has been suggested that this wide definition is having unintended consequences by barring many from using the procedure.

The consultation on the rules is sensible. The DRO has become popular since its creation nearly a year ago and there is clearly a need for easily accessible and affordable debt relief for those who are over-indebted and who have no prospect of ever escaping their creditors.

Neither a lender nor a borrower be?

Lending to individuals is on the up

Statistics released today by the Bank of England show that lending to individuals (rather than businesses) increased in December amid signs that the credit crunch is easing. Total net lending to individuals rose by £1.2 billion in December whilst the twelve-month growth rate remained at 0.7%. The net lending secured on dwellings increased by £1.2 billion, meaning that secured lenders are willing to increase their exposure to the UK property market. This optimism seems to be backed up by figures from the Land Registry showing that UK house prices rose by 0.1% in the month of December and went up by 2.5% overall in 2009.

Whilst net lending secured on property has been increasing over the past few months, December saw the first net increase in unsecured lending for six months, with an overall increase of £0.1 billion.

Needless to say, different people will read different things into these figures. On the one hand, evidence that lenders are freeing up credit and making it easier to borrow money may be regarded as positive signs that the credit crunch has come to an end. On the other hand, the impact of over-indebtedness has become an increasingly important socio-economic issue and the national addiction to credit seems to be here to stay.
 
If banks keep lending without real regard for their customers' ability to repay, they will surely come unstuck again. And if individuals don't take responsibility for their credit habits, they will find themselves in deep trouble. Further regulation of consumer banking may help, but more financial education for individuals is sorely needed.

Time to close the stable door?

Calls for a ban on the sale of store cards at point of sale by unqualified staff

The leading insolvency trade association, R3, has called for a ban on the promotion of store cards at the point of sale by staff who do not have financial qualifications. In other words, no more getting to the checkout only to have a store card application thrusted at you, with the promise of some sort of introductory discount. R3 has warned that this practice "contributes to the mountain of personal debt in the UK and entices vulnerable customers into debt."

A survey carried out by R3 showed that over 70% of insolvency practitioners thought that it is too easy to obtain credit and store cards and two-thirds had seen cases where shoppers had been encouraged to sign up for store cards without understanding what they were agreeing to. The association has published case studies including several where debts of over £100,000 had been accrued on cards and cases where over 30 different credit and store cards had been amassed.

The wide availability of credit with little or no checking of whether the debt is affordable for the customer has surely contributed to the huge levels of debt - and high levels of over-indebtedness - in the UK. Lenders seem to have taken the view that they are prepared to offer credit with little or no evidence of whether the debt can be repaid, in order to reduce the "cost of acquisition" of new customers. Normally, the only time that a lender is interested in affordability of a debt is when the customer has begun to struggle with the repayments, which is counter-intuitive. Instead of checking affordabilty at the start (which can be time consuming and expensive) lenders prefer to build a provision into their margins to cover any losses. The problem for lenders in recent years has been that bad debt levels have spiralled and banks have been unable to accurately forecast future bad debts.

So tightening up the rules on the selling of store cards with discount promotions at the tills seems like a good idea - if only to protect lenders from their own practices.

David Cameron announces proposed change to 'insolvency threshold'

Conservatives indicate willingness to tinker with insolvency rules

On The Andrew Marr Show on BBC1 yesterday, Conservative leader David Cameron announced plans to boost small busineses as part of a package of measures to stimulate jobs, wealth and enterprise and to allow the country to "trade its way out of recession." As well as reducing the amount of time it takes to set up a new business and encouraging social landlords to permit tenants to operate a business from their homes, Cameron announced that a Conservative Government would raise the "insolvency threshold" to £2,000 from the current level of £750. He stated that more small businesses had gone "bankrupt" in this recession than previous ones and that "a number have been pushed there by the government itself."

At present, a creditor can petition for an individual's bankruptcy if they are owed more than £750, whilst a company can be wound up following a statutory demand for a debt in excess of £750. But a company can also be wound up by the court if a creditor obtains a judgment for any amount and is then unable to enforce it - for instance, if bailiffs report that there are no valuable assets to remove. So increasing the threshold for companies won't necessarily make it more difficult for a creditor to wind up a struggling company, but it will give some protection for sole traders, who make up the majority of small businesses in the UK.

The threshold of £750 hasn't changed since the Insolvency Act gained Royal Assent in 1986 so it seems reasonable to revisit it. In the 24 years since the legislation was passed, inflation alone would mean that £750 would be more like £1,700 in today's money. I suspect that the threshold hasn't been revisited sooner because the legislation was poorly drafted: the threshold relating to bankruptcy can be changed by statutory instrument but there is no corresponding provision for company winding-up, making it all a bit messy.

But there is another issue: by raising the insolvency threshold, will this lead to more businesses experiencing further problems of non-payment by customers? Would this send out the wrong message to businesses, encouraging them to delay payment? I hope not.