Categories
General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

Employing Restructuring Advisers to Help Save Your Company

There are a number of options for companies who find themselves in financial difficulties, but a real challenge is finding someone to help.
It’s made more difficult if the directors/owners take the view that they know their business better than anyone else and infer from this that if they don’t know the solution, then no one else will.
A second issue is trying to solve the situation alone, via a self-help route.  It may be that research has revealed a number of options and in a situation of financial difficulty there is a temptation to latch onto the cheapest or first solution. Indeed, you are likely to think you can’t afford help and as a result persuade yourself that the cheap solution is the right one. It is no surprise that a lot of companies fail having not sought any advice.
In either situation eventually a squeeze on cash flow or pressure from creditors tends to be the catalyst that galvanises action and you are likely to start looking for a solution.
Who do you turn to for help when feeling as boxed in as this?  What’s needed is a business rescue adviser, but how do you go about the process of finding one from among the insolvency, turnaround, accounting and consultancy advisers?  
Carry out a thorough vetting process to confirm they have suitable experience and offer a rescue process rather than selling only one rescue solution. The rescue process should involve a thorough business review to identify a viable business that can emerge from the process, then developing and implementing an operational reorganisation and financial restructuring plan. One aspect of the financial restructuring plan will be how to deal with all the company’s liabilities.
In addition to bank and trade creditors a key creditor is likely to be the HMRC (Her Majesty’s Customs and Excise). Too often companies are advised to enter a Time to Pay arrangement with the HMRC to deal with tax, VAT or PAYE arrears or to enter a Company Voluntary Agreement (CVA) to deal with debts without a realistic assessment of the other demands on the company’s cash.
The first thing to find out, therefore, is whether the adviser is selling something or has a vested interest in the company pursuing a particular solution. Having established they are truly independent, the adviser will conduct a review to establish the core issues.
Support from business rescue advisers with broad commercial experience, not just insolvency, will help manage the process while at the same time helping find a realistic solution.

Categories
General Insolvency Rescue, Restructuring & Recovery Turnaround

Redundancy Costs Due to Staff Reduction Can Leave a Company Insolvent

Companies struggling to survive a severe economic downturn like the current one often consider ways to reduce their overheads.
Generally one of the biggest costs on a business is the payroll and looking to redundancies as a way to reduce them is a common response to a recession.
The reasons used for making employees redundant are generally economic, technical or organisational. This can be that new technology or a new system has made a job unnecessary, the company needs to cut costs or that the business is closing down or moving.
However, making staff redundant is closely regulated and there are rules for the steps that a business must follow if it chooses to go down this route. These can be extremely expensive and if not managed properly could actually leave the company insolvent rather than achieving the desired objective.
Firstly, many companies consult employment specialists to ensure that it complies with the rules and carries out the process correctly and this in itself can involve paying substantial fees.
If an employer is making fewer than 20 employees redundant in one establishment it must consult individually. 
For more than 20 employees being made redundant within a 90-day period it becomes a collective redundancy and the employer has a duty to consult with representatives of the potentially affected employees. If the employer does not consult then the employees can apply to an Employment Tribunal claim for a protective award. This is an award of up to 90 days’ pay.
Rules about employees’ redundancy entitlements are laid down by the Government. The calculation is based on how long the employee has been continuously employed, their age and their weeks of entitlement up to a certain limit (£380 per week current allowance).
Failure to carry out a redundancy operation can also result in employees taking the employer to a Tribunal with a claim of unfair dismissal. In certain circumstances this can also add to the employer’s costs, not only if the Tribunal rules in favour of the employee but also, in some specific circumstances Tribunals now have the power to award costs of up to £10,000. 
A better option for cost reduction before going down the redundancy route could be to call in a business rescue adviser to carry out a thorough review of the business to assess the business viability, look at its accounts and business model, identify any underlying weaknesses and suggest a restructuring plan.

Categories
General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround

Are Government Insolvency Statistics Concealing the Number of Insolvent Companies?

As a consequence of the global financial crisis it is reasonable to assume that the numbers of companies in financial difficulties serious enough to precipitate insolvency would be increasing.
However, figures for the second quarter of this year released by the UK Insolvency Service in August show that there were 2,080 companies in England and Wales that were placed into liquidation.
These are made up of compulsory liquidations and creditors voluntary liquidations and showed a 0.5% increase on the previous quarter but a decrease of 19.1% on the same quarter in 2009.
Compulsory liquidations were down 9.9% on the previous quarter and 21.0% on the corresponding quarter in 2009, while creditor voluntary liquidations were up 5.4% compared with the previous quarter but down 18.3% compared to the same quarter in 2009.
It would be tempting to infer from these figures that the economy is beginning to recover and the pressure on companies is easing.
It is possible, however, that the decline in liquidations is concealing the number of companies in financial difficulties because of a lack of pressure from creditors other than the HMRC (Her Majesty’s Revenue & Customs ), the only active creditor currently seeking winding up orders in the courts.
The Government’s Comprehensive Spending Review in October may reveal the full impact on UK insolvencies.
Even if the UK avoids a double dip recession, there is a risk that the UK economy could develop a twin track economy, with public-sector-dependent industries facing higher levels of financial distress than sectors which are less directly linked to government spending cuts.
Some commentators argue that while Corporate insolvencies are still well below the numbers that would normally be expected at this point in the cycle the slight quarterly rise in the number of liquidations may signal that conditions are starting to turn against UK companies once again.
The lower than expected number of insolvencies is ascribed to a variety of proactive measures, HMRC Time to Pay arrangements and bank forbearance, together buying time for companies to deal with their financial situation. However, this may perhaps have only delayed the inevitable for others that are less robust or those that fail to use the time by taking remedial action to reduce costs or implement other steps that ensures survival.

Categories
General HM Revenue & Customs, VAT & PAYE Rescue, Restructuring & Recovery Turnaround

Managing Tax Payments with Time To Pay Arrangements

There are hundreds of thousands of businesses struggling to meet their financial obligations to the Exchequer.
Businesses, especially smaller enterprises, have been reporting that in the current difficult economic climate they are struggling with cash flow issues as customers and suppliers try to stretch out the time they take to pay invoices. That means they may not have enough liquidity to pay the tax they owe.
While the majority of these tax monies are repaid, the HMRC (Her Majesty’s Revenue & Customs) has reported that 10% of expected revenues are outstanding.
The UK’s Time to Pay (TTP) scheme was introduced in 2008 and allows businesses to pay overdue tax bills over a certain period of time. The scheme is administered by the Businesses Payment Support Service.
According to the HMRC website, arrangements are tailored to the ability of the customer to pay and are typically for a few months although they can be longer.
TTPs lasting longer than a year are only agreed in exceptional cases. Most arrangements involve regular monthly payments being made but in exceptional cases may involve a short period of deferral.
All businesses seeking a TTP of £1m or more need to pay for an Independent Business Review (IBR) to be carried out by an approved firm, normally an insolvency practitioner, and a total of 13 firms have been approved by HMRC to carry out IBRs to establish whether the business can pay back their deferred tax bill.
When the restructuring plans are ready, a business rescue adviser would normally expect to bring in an HMRC approved firm that they already know. The IBR would assess the company’s ability to eventually pay back any tax deferred by HMRC based on a review the proposals prepared by the adviser. These would be prepared with view to demonstrating a viable business.
The most recent statistics issued by HMRC are from March 2010 when it was revealed that 300,000 businesses have entered TTP arrangements since the end of 2008, deferring at least £5.2bn in business taxes. That equates to an average of 4,500 a week.
Concerns have been raised that it is getting tougher to join the scheme, and there have been some predictions that it would eventually have to close. However HMRC has insisted the TTP is still available and the eligibility criteria have not changed. The UK Coalition Government’s Business Secretary Vince Cable, speaking at a recent Institute of Directors event, reinforced this by saying that his department’s instructions to HMRC was to still make it “easy” for applicants to agree TTP arrangements.

Categories
General HM Revenue & Customs, VAT & PAYE Rescue, Restructuring & Recovery Turnaround

Dealing with VAT Arrears and PAYE Arrears

Owing HMRC (Her Majesty’s Revenue & Customs) more than £150,000 for overdue VAT and PAYE when your turnover is less than £3 million is not uncommon in 2010.  
The leniency of HMRC, whose light touch approach to collecting Revenue arrears since the recession began has helped the cash flow of many companies, has also made it easier for them to accrue both VAT and PAYE arrears. But the lack of a recovery has left companies in arrears burdened with debt they can’t easily repay.
Companies in this position have a number of options, but a real challenge is when to do something about it. If ignored, the liability can build up and the underlying business problems can escalate to a point where the company can find it more difficult to recover.
While directors are normally aware of the problems, and in particular of the liability in respect of Revenue arrears, they may not be aware of their options, assuming: “I know my business better than anyone else and if I don’t know the solution, then no one else will.”
Consider three financial solutions when dealing with HMRC arrears. They are immediate payment, a Time to Pay (TTP) arrangement or a Company Voluntary Arrangement (CVA). However, all too often one of these is implemented without considering other issues that perhaps need to be addressed at the same time.
The build up of PAYE arrears and VAT arrears is an indicator that the business is no longer profitable or that it doesn’t have sufficient working capital. The underlying issues can be identified by a business review and preparation of forecasts. It is obvious that an unprofitable company cannot achieve a payment plan while also covering ongoing payments. Less obvious is the restructuring and reorganisation that may be needed to achieve a viable business, one that is profitable with adequate working capital and positive cash flow.
Surviving the pressure of PAYE and VAT arrears generally involves more than just fixing the financial problem.  the underlying issues need to be identified and workable solutions put in place.