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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Further thoughts on small business definitions

 

If, as is argued, Micro businesses are unable to take advantage of Government initiatives for small businesses (the S in SME) what about these further two sub divisions?

There are two other types of business that presumably currently fall into the “S” category of SME – the Lifestyle business and the Sole Trader.

Broadly the Lifestyle business can be described as one where its owner(s) deliberately run it so as to allow them to support a lifestyle. They need a satisfactory level of profit but tend not to focus on growth beyond a certain size. Typical examples would be those who want to prioritise their time with children, or those who want to work from home. Such businesses might be based on providing services time can be self-managed such as designers or consultants, or using creative skills to write or make goods for sale. The internet has made many such businesses possible.

The Sole Trader, on the other hand, is a definition used by HMRC to cover anyone who is self-employed. They may have a particular trade or skill they can sell, such as carpentry, plumbing, painting and decorating, accountancy, book keeping and so on, and some may have set up independently as a result of redundancy though others will have made a conscious decision to become independent.

Given time, effort and ambition this second group can potentially grow into a much larger business employing people. There is likely to come a time when the Sole Trader needs support, mentoring and funding to achieve growth.

Plainly, though, to be of genuine, practical help any Government support for the Sole Trader, the Micro Business with fewer than 10 employees and the Small Business, with between 10 and 50 employees should be tailored to each specific group’s needs.

While economic recovery is said to depend on the growth of small businesses what chance is there of Government understanding or adopting this more nuanced and necessary approach to achieve this?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are SMEs really MSMEs and what is the squeezed Middle?

 

We all use it without really thinking and assume we know what it means.

The acronym SME provokes puzzlement in some quarters and ire in others, according to Daily Telegraph business writer  Michael Hayman, who quotes King of Shaves founder Will King: “Get rid of this casual piece of profanity…It needs to be removed from the Oxford English Dictionary.”

So what is the problem? 

SME is short for Small and Medium Sized Enterprises and that, according to CBI director general John Cridland, means the M in the middle is a “forgotten army”, the middle-sized businesses on which the economy is relying for growth.

But it’s actually a bit more complicated than that since no-one agrees on the definition of small.

The UK and the EU use the same definitions for businesses, based on number of employees and turnover – Micro, Small and Medium – which actually would give us the acronym MSME!

Micro Businesses are those with fewer than 10 employees and turnover under £2 million, Small Businesses consists of fewer than 50 employees / turnover under £10 million and a Medium Business has fewer than 250 employees / turnover under £50 million.

It is argued that 95% of UK companies qualify as Micro Businesses. This has led to the setting up of a parliamentary group, the All-Party Parliamentary Group (APPG) for Micro Businesses, chaired by Anne Marie Morris, Conservative MP for Newton Abbot.

The CBI has calculated that middle-sized companies contain between £20billion and £50billion of unrealised economic output, and are best placed, unlike their smaller brethren, to take advantage of export opportunities in the emerging markets of the world.

The argument is that by lumping them all together the M, Medium, businesses in SMEs are neglected and don’t get the support they deserve.  Equally the other M, Micro Businesses, lose out by being lumped in with Small but actually can’t take advantage of government support aimed at the Small.

What do you think? Do you see yourself as Micro, Small or Medium?  Do you feel neglected? And should we replace SME with MSME?

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Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

Further questions need to be asked

 

In our last blog we highlighted the case of businessman Michael  Hockin’s 15-month battle to be allowed to sue RBS over a mis-sold Interest Rate Swap (IRS) which added over £600K to his company’s annual repayment bill to the bank.

The High Court ruled in his favour even though his company had been put into administration and, as mentioned, the administrators had declined to pursue the bank for the benefit of creditors.

We’ve found an interesting little note on the Financial Conduct Authority’s (FCA)website regarding reviews of  a bank’s mis-selling of an IRS, which clearly states that businesses in administration are (our italics) eligible to participate in the review:  http://tinyurl.com/pgqsr9p  

“…when banks invite businesses in administration to submit any relevant information…..we would generally expect administrators to offer the former directors or shareholders the opportunity to put forward their perspective.

“However, it will be the administrators and not the former directors or shareholders who will engage with the banks during the review.”  (our italics again)

We have previously questioned the conflict of interests between panel firms advising directors and their relationship with banks. Is there another potential conflict between panel firms representing banks and their duty to unsecured creditors? These issues were not included in last month’s review by the Insolvency Service of the regulatory regime and fee structure. A missed opportunity.

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Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

High Court ruling on mis-sold IRS gives businessman the right to sue RBS

 

As time goes on more and more murky behaviour by the banks in their treatment of SMEs over Interest Rate Swaps (IRS) is being revealed.

It has been two years since the lobbying group Bully Banks first highlighted IRS mis-selling (IRS are also sometimes referred to as Interest Rate Hedging Products- IRHPs).

As a result of their efforts, and the Tomlinson report into the behaviour of RBS, the Financial Conduct Authority (FCA) has been tasked with investigating the banks’ behaviour and administering a redress scheme to allow SMEs to reclaim their money.

Now a High Court ruling has given one businessman, Michael Hockin the right to sue RBS over a mis-sold IRS, even though the bank put his business into administration in a classic illustration of the behaviour highlighted by Tomlinson.

The company, London and Westcountry Estates, had had a loan that RBS converted to a 10-year IRS, adding an estimated £600,000 extra in annual repayments and an exit fee of £11 million that Mr Hockin said the family was never warned about.

One of the questions that needs to be asked is why the administrators of this once-prosperous business, Ernst & Young, did not pursue a claim against RBS over alleged mis-selling.

RBS meanwhile is quoted as saying that it had investigated Mr Hockin’s concern about mis-selling and found no evidence of wrongdoing by the bank

The case will now be heard in court. Hopefully the issue of why the administrators declined to pursue the bank will be given an airing.