Tag: Administration

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Banks, Lenders & Investors Cash Flow & Forecasting County Court, Legal & Litigation Finance Insolvency Rescue, Restructuring & Recovery Turnaround

A sorry tale supports the case for proposed changes to insolvency regulation

stressed businessman 2 Huffington PostWe were recently involved in helping an insolvent construction company with their restructuring, which was necessary for them to survive.
All had been going according to plan, with the directors, shareholders and most creditors on board in support of a CVA proposal that would have helped the business to survive.
Or so we thought.
Having finalised the CVA proposal it was being reviewed by one insolvency practitioner (IP) who was expecting to act as Nominee and Supervisor when another IP turned up at the company offices having an hour earlier been appointed Administrator without notice being served on the company.
Unknown to the directors, it transpired that one of three shareholders, who incidentally had shortly beforehand resigned as a director and was also a creditor, had independently sought advice from an IP with the inevitable results. We deduced that not only had the IP advised the shareholder/creditor that an Administrator should be appointed but also had advised them not to reveal this to the company’s directors or the proposed Nominee.
We can only presume that the IP concerned saw an opportunity to get himself appointed without first checking what might be in the best interests of creditors.
What the IP/Administrator clearly did not understand was the nature of debt in construction companies, where there are usually very few recoverable fixed assets and debt is normally based on applications for payment and certificates as project related payments. Construction project debt is complicated due to the set-off nature of debt when a company is unable to complete a project. The IP’s staff had to ask the directors to explain applications and certificates.

The case for imposing proposed changes to insolvency regulation

So, an opportunity for a consensual restructuring that was acceptable to nearly all those involved was lost, and there was arguably a conflict of interest in that the IP’s own interest was in their fee, they had a duty to look after the party that appointed them, but as Administrator their main duty is to act in the best interests of all creditors.
While one of the outcomes of Administration is a CVA, the practice of most IPs is to use it for the purposes of a better realisation. Cynics might argue that this offers scope for maximising the IP’s fees.
Despite the clear benefit that a CVA offered to creditors on the example cited above, it will be no surprise that the Administration pursued a better realisation purpose, without the better realisation being achieved.
All of which supports the Insolvency Service’s current proposal for a three-month moratorium against enforcement or legal action by creditors and allows time for rescue plans to be prepared and considered by creditors.

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Accounting & Bookkeeping General Rescue, Restructuring & Recovery Turnaround

How many suppliers does your business really need?

In the course of our work in helping SMEs to become more efficient and targeted, we often come across businesses that have a large number of suppliers.
Keeping track of ordering, invoicing and payment across many suppliers can be a needless burden on the administrative system. Especially when reconciling your statements with theirs.
It also makes it more difficult for the business to understand and manage the risks that may be hidden in its supply chain.
A typical example of a business with too many suppliers is the building company that goes to a number of different builders’ merchants for the same materials. It may be that at some point they have either found a supplier that was cheaper or that they had used another supplier to source materials not available with their usual one.
Over time, the list of suppliers grows and grows while the original reason for using them no longer applies.
While it is important for all businesses to keep their costs down and therefore to shop around for the best deal, the time spent ‘shopping round’ is a hidden cost that contributes to inefficiency by adding to the administrative burden.
If on the other hand a periodic review of prices is carried out and an approved supplier list is used, then the hidden cost of ‘shopping round’ and the administrative burden of managing lots of purchase ledger accounts can be significantly reduced.
It may of course be that there is an advantage to having back up suppliers but great deals can be achieved with a discount on price and high levels of service where the supplier has the “loyalty value” of your regular, longer term custom.

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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.

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Banks, Lenders & Investors Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Administrator's fees of £500k for a small firm

This shocking story in the Daily Telegraph did not name the insolvency firm who built managed to charge a staggering £500,000 for the administration of a small company with 40 employees, see http://tinyurl.com/jwzlcmc.
It appears that secured lenders pulled the plug on this small shopfitting business, presumably to recover their secured loan. The article refers to 10p in the £1 being paid to unsecured creditors.
Given that secured loans are paid ahead of the insolvency fees and that these are paid ahead of unsecured creditors, then this business had significant assets. While the fees will have been justified as representing the time and costs incurred in performing their duties, administration fees also need to be proportionate. Stories like this don’t do the insolvency profession any favours.
Insolvency firms will always justify any adopted procedure and its associated fees but sometimes we might question whether they are justifiable.  If there were sufficient funds in the business to pay such fees then why wasn’t an effort made to restructure and save it such as by using the much less expensive CVA (Creditors’ Voluntary Arrangement) procedure?
Indeed who was advising the directors and shareholders? Too often directors make the mistake of trusting the advice of an insolvency practitioner who is normally working for the secured or unsecured creditors. They rarely ever appoint their own advisors.  
All too often a company in difficulty is closed down rather than being restructured. In most cases everyone loses out: directors, shareholders, unsecured creditors and employees. 
The only “winners” in an administration are the insolvency firm and the secured creditor that appointed them.

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

Why HMV may just survive while other high street retailers crash and burn

Despite the continuing carnage on the High Street there are glimmers of hope emerging from the restructuring process currently being carried out on the music store HMV.
Why? Well as with any business restructuring the first step is to carry out a review which includes a thorough look at the accounts to identify any areas where savings can be made, the most obvious in this case being loss-making stores, onerous rental agreements and  the employment roll.
Already the closure of 66 loss-making stores has been announced, plus a further 37 this week, and also administrators Deloitte have noted that landlords have been generally “flexible and supportive” during the ongoing efforts to restructure the business.
Most significant, however, may be the recent announcement that trading agreements for the supply of new stock have been signed with the majority of HMV’s suppliers, something that is generally unusual when a company is in difficulties.
It is clear that HMV’s business model needs to change to take account of the shift in consumer behaviour and deal with intense competition for the sale of music, DVDs and games from online suppliers, digital downloads and also from supermarkets.
HMV however has support from a record industry, particularly the independent labels, which is keen to maintain a High Street presence and can learn from other retailers that justify their High Street presence by providing consumers with a retail experience rather than just a place to purchase goods.
Artists, too, have expressed support with Elton John suggesting holding live gigs in the stores.
The secret is in the details. Customers have been quoted as saying they valued the opportunity to browse, to talk to knowledgeable experts when they are searching for unusual and niche items and to have a sample listen to tracks before they buy. With appropriate staff training, these could provide a USP for the retail arm of the business to highlight.
All this illustrates that a thorough business restructuring involves attention to detail and identifying those aspects that make it special or unique and that may just help it to survive by returning focus to core strengths that may have been lost sight of over time.

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

Quarter Day Rent claims its first major scalp of 2013

K2 Business Rescue asked in a pre-Christmas blog whether January would see a rise of retail insolvencies given the December 25 quarter day rent falling due.
It may be too early to expect a flood but today’s announcement that the High Street camera chain Jessups has gone into administration with PWC as appointed administrators may be first sign. 
Jessups, which in 2009 managed to avoid administration by arranging a debt for equity swap with lender HSBC, saw a significant decline in market share throughout 2012. 
The company has 192 UK stores employing around 2,000 people and the administrators have said that inevitably some stores will have to close given the current ongoing economic crisis. 
Despite the balance sheet restructuring in 2009, Jessups is an example of a company that did not change its business model. As a long established retailer  they continued to rely on high street sales while its market and customers buying behaviour changed. 
Financial restructuring rarely works unless it is part of a strategic review which normally results in a change of business model and an associated operational reorganisation. 
The question is if companies that are currently hanging on by their fingernails do not take action and call in an experienced rescue and turnaround practitioner who will be next?
 

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Debt Collection & Credit Management General Rescue, Restructuring & Recovery Turnaround

Construction in Crisis – Time for a Reconstruction?

The ongoing economic crisis continues to take its toll on the construction industry with the sad news that a high profile company that was more than 100 years old has gone into administration.
KPMG have been appointed as administrators of London-based Holloway White Allom, which recently completed a refurbishment of the Victoria & Albert Museum, for which it won a conservation award.
The company, founded in 1882, was known for high profile contracts including the refurbishment of the Bank of England in the 1930s, the construction of Admiralty Buildings on Horse Guards Parade, of the Old Bailey in the early 1900s and the fountains in Trafalgar Square.
Although the company was undergoing a turnaround and restructure, following a cash injection earlier in the year from private equity firm Privet Capital, it is understood that it was forced into administration by late payment for one large project.
This latest high profile casualty comes as the construction industry faces increasing pressure. ONS figures show that output on public housing was down by 5.3% and on other public projects by 7.5% during the three months to August 2011 compared with Q3 last year, and accountancy firm Deloitte reports that the number of property and construction companies that went into administration in Q3 2011 rose by 11% to 117 compared to 105 in the same period last year.
However, some sectors of the industry are faring better than others.  Bellway, for example, this week posted a 50% annual increase in pre-tax profits, smaller construction companies focusing on repair and refurbishment are also surviving well and commercial construction activity has increased for the 19th month in a row.
Those companies that took steps to restructure their business to focus on what is likely to survive in a declining market and to deal with indebtedness early in the recession have done well. 
This suggests that those companies with a bad debt or over-indebtedness due to historical loans should consider restructuring their businesses before they run out of cash. It is not too late for them, but they are likely to require a restructuring adviser to help them.

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General Insolvency Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Turnaround

Saving insolvent companies needs both a restructuring and business plan

Following the demise of Rok and Connaught, a third national building maintenance company, Kinetics Group, has gone into administration with 500 employees being made redundant leaving a skeleton staff of 50 to deal with its five sites.
Insolvency practitioners Begbies Traynor were appointed as administrators in July and attribute the demise to the loss of key contracts and delays in payments by customers.
The background to this dramatic failure seems to be rather complicated. In June 2011, there appears to have been an attempt to save the company through acquisition of the business and assets of a number of its own subsidiaries by a newly formed subsidiary SCP Renewable Energy Limited (SCP).
It is not yet clear if the acquisition took place before or after these companies were placed in liquidation or administration and a further complication is SCP Renewable Energy Limited’s status, referred to by the administrators as a newly incorporated company owned by Kinetics. But this name is not listed at Companies House.
In my view it is clear that the June restructuring was flawed. What exacly was the role of the various stakeholders? Did they ensure that viable restructuring and business plans were in place as a condition of their approving the acquisition?
Is this an issue with the sale of business and assets by an administrator, where the administrator is not responsible for the ability of any purchaser to run or fund the acquired business?
Administrators rarely save a company as a going concern, so their only real objective is to maximise realisations for the benefit of creditors.

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General Insolvency Liquidation, Pre-Packs & Phoenix Personal Guarantees Rescue, Restructuring & Recovery Turnaround

Guide to Pre-Pack Administration from K2 Business Rescue

Pre-pack Administration is a tool for saving struggling businesses that are in severe financial difficulties but are potentially sound. Pre-packs allow the business idea to be preserved, retaining customers, suppliers and goodwill, without all the start-up costs normally associated with a new business.
Essentially it means “selling” the business to a new company immediately upon appointment of an Administrator, the preparation for sale being carried out prior to appointment.  The sale requires additional scrutiny if the directors and shareholders of the new company are the same as in the previous company to prevent any abuse.
Insolvency practitioners use pre-pack administrations to achieve the swift sale of a business where it is not appropriate for them to trade the business as a company in administration. This way the business can continue to trade without disruption.
Reasons for not trading a company in administration include avoiding the administrators’ costs and the risks of trading a company in administration. It is often argued that key stakeholders such as customers, staff or suppliers will not remain loyal to a company in administration.
A pre-pack is only one form of administration. In normal administrations there are a number of possible outcomes including return of the company to the control of the directors, such as following a restructuring or a Company Voluntary Arrangement, or the administrator can sell the business and assets ahead of liquidation. In the pre-pack form assets are sold immediately on appointment of the administrator, who does not then trade the company.
Pre-packs also have huge advantages in allowing the new company to trade without the burden of the previous company’s debt, almost without disruption keeping valued staff and equipment, contracts, relationships and customers. 
While a pre-pack is often regarded as controversial because the creditors are faced with a done deal, the counter argument is that a swift sale of the business assets is the best opportunity to preserve value and therefore ensure the best possible return for the creditors who might otherwise get nothing or very little.
However, to prevent abuse, especially as the creditors do not get a chance to object, before a company can use this method it must show it has taken advice from an insolvency practitioner who must ensure the business and assets are independently valued and not sold below their value.

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