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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Leadership, Restructuring and the Eurozone

The Germans and other northern members have benefited from the Euro effectively fixing the exchange rate that has made it easy and relatively cheap for them to sell their cars etc to southern members to whom they lent money to buy their cars. This is very similar to the banks lending money to customers who spent it.
The issue then is who takes responsibility for the debt and managing the Eurozone fallout. Do lenders write off debt, or do they lend more such as via Eurobonds or Quantitive Easing (QE) with terms that impose huge penalties. This latter route is similar to the reparations that planted the seeds of the second world war, a subject that has recently been put on the table. Or do lenders defer payments that allow for a fudge whereby loans are repaid over an extended period that effectively allows inflation to devalue the loans.
The UK has opted for the fudge route and will avoid banks defaulting through QE, low interest rates and using inflation to reduce the cost of repaying debt. While most borrowers will benefit, those with assets, savings and reserves will see them devalued while the debt overhang is cleared. Although this is regarded by many as a mistake, we saw in 2007 and 2008 what happens when banks default and are right to avoid bank defaults.
Europe however has yet to find a solution whether it is by managing southern member defaults, or providing more loans to avoid default. The problem facing European leaders is that they need to be strong and stand up to their electorates if the lessons of history are to be applied.
While European leaders find their backbone, in UK our political leaders are looking decisive, a tribute to both Darling and Osborne. Inspite of the decisions taken it will still take a long time to clear the debt overhang with a floating exchange rate and inflation to reduce debt and low interest rates to smooth the way.
Most UK companies that have undergone restructuring have much stronger balance sheets and are building reserves ready to take advantage of the Eurozone fallout. However there are still many more UK companies, that like many European members, have weak balance sheets and continue to struggle while they and their lenders put off the inevitible restructuring.

Categories
General HM Revenue & Customs, VAT & PAYE Voluntary Arrangements - CVAs Winding Up Petitions

Winding Up Petitions

269 Company Winding Up Petitions are due to be heard in the High Court this coming Monday, 19th September where the list is still dominated by HMRC petitions.
None of the Companies listed are well known and unusually there are no football clubs listed however one with the name Three Merry Lads Ltd sounds like an interesting business.
Since introducing our handholding service for directors dealing with a Winding Up Petition, it is unusual for K2 not to have anyone to take along on Monday. We like to take directors to the High Court in London several weeks before their company’s Petition is heard so they know what to expect, but we continue to be surprised that so many reject the offer of this free service.
If you know anyone dealing with a Winding Up Petition or have a client who would like to come along to the Companies Winding Up Court on Monday or indeed any Monday do get in touch, call over the weekend if you want to join us on Monday 19th.
We love it whan a petition is dismissed following approval of a CVA.

Categories
Banks, Lenders & Investors Business Development & Marketing Debt Collection & Credit Management General Insolvency Personal Guarantees Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

Latest insolvency stats suggest Zombie companies are still hanging on

The latest Insolvency stats suggest that Zombie Businesses are holding back the UK Economy.
A summary of the Q2 2011 UK insolvency statistics shows: Compulsory Liquidations up; Voluntary Liquidations down; Administrations down and CVAs static.
Against a background of slowing growth over the last three quarters of the UK economy, perhaps the picture of what has been going on is becoming clearer.
Unlike most insolvency and turnaround practitioners, I do not believe that we will soon be busy restructuring the large number of over-leveraged businesses.
I believe businesses are putting off restructuring and will do so for as long as possible, at least while the economy is uncertain. Historically insolvencies have increased during the upturn after the bottom of a recession, when business prospects can be predicted. Right now it is not clear if we have reached the bottom and if there will be any growth, let alone how much, or if the market will flatline for some time.
One set of figures, the increase in compulsory liquidations, does indicate a level of frustration over companies not taking action to deal with their debts. Creditors are becoming impatient with directors who are putting off restructuring and starting to force their hand by issuing a winding up petition. But even these figures are very low.
The tragedy is that without restructuring, a great many so called ‘Zombie businesses’, lack optimism to plan for the future. They have run down their stock levels, cut staff to the bone, do limited marketing, are not investing nor looking for growth opportunities let alone looking abroad and are not laying foundations for their future.
The lack of optimism is resulting in quality and service levels being in decline and as a result they are holding back economic recovery because they are not investing in it.

Categories
Banks, Lenders & Investors Business Development & Marketing General

Successful retail business models can overcome a depressed market

Despite the ongoing doom and gloom on the High Street there have been some success stories.
They all illustrate a crucial point – that retail decline is not terminal, as long as businesses think innovatively.
Coffee Nation, which has recently been bought by Costa Coffee, achieved its success by cleverly positioning its machines in existing outlets, including Tesco Express, Texaco, Shell and Welcome Break, delivering fresh ground coffee from bean to cup. 
This machine with a back-up maintenance service and piggybacking into already well-known outlets kept costs to a minimum.
Peterborough-based Kiddicare is essentially an online store but with one larger than normal warehouse/store, where customers can browse then place their orders and organise delivery online at the in store booths. The company has recently been acquired by the Morrissons supermarket chain.
Similarly, an electrical goods supplier, in an Eastern European country with very limited infrastructure or internet access, positioned some of its electrical goods in village stores and them with internet access and terminals for customers to make orders and organise delivery to the shops for pick-up.
In my view these retail business models show that a new way of doing business is emerging where the retailer no longer needs their own premises but provides online access, and a nominal level of in-store stock or samples for consumers to see.
With a bit of thought and planning and a proper business model there is no reason why larger retail chains could not operate similar schemes to prosper as well as bringing some life back into village stores and Post Offices to help restore them as the viable, environmentally friendly community hubs they once were.

Categories
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.

Categories
General HM Revenue & Customs, VAT & PAYE Personal Guarantees Voluntary Arrangements - CVAs

How to protect Personal Guarantees when a company is insolvent

Many insolvent companies are being run to avoid the triggering of personal guarantees given by directors and owners.
Most personal guarantees are provided to secured creditors such as a bank to cover loans or overdrafts that are already protected by a debenture which provides for a fixed and floating charge over the company’s assets. In such cases the personal guarantee is often only triggered by liquidation when the bank is left with a shortfall.
In view of the above I am astonished how many directors plough on, stretching payments to HMRC and extending unsecured creditor liabilities without fundamentally improving their company’s financial situation via a company voluntary arrangement (CVA).
Secured creditors stand outside a CVA and therefore they have no need to call upon a personal guarantee.
I would urge all professional advisers, including accountants, lawyers and consultants to learn about CVAs since they are such a powerful tool for saving companies and in so doing avoiding personal guarantees being triggered.

Categories
Banks, Lenders & Investors Cash Flow & Forecasting General HM Revenue & Customs, VAT & PAYE Insolvency Interim Management & Executive Support Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

Many companies for sale turn out to be insolvent

Many companies are being listed for sale through brokers with high price tags based on very tenuous valuations, where the owners have been deceived into thinking they will be paid a huge amount for their equity.
However, on closer inspection it turns out that many of them have a Time to Pay arrangement with HM Revenue and Customs or are in arrears with the Revenue and are stretching their trade creditors. All too often they are insolvent but don’t realise it. 
This over indebtedness is becoming a serious concern among potential investors because often the company they want to buy is operationally a great business and for trade buyers a perfect fit with their existing businesses. The problem for investors is how to protect their own interests and avoid contamination.
Very often, even experienced executives lack the knowledge and methodologies for assessing a company they want to buy, let alone knowing how to sort out the indebtedness once due diligence has revealed its extent.
In my view, potential investors can work with incumbent directors to reach agreement with creditors that protects all parties by enhancing the prospect of a return to sellers and avoiding cross contamination.
One method I use is an investment, conditional on approval of a CVA by creditors thus leaving finance agreements and any liabilities in the target company. It also allows creditors’ issues to be addressed where they are not normally consulted in a pre-pack. For the investor, this can be structured to give them security and control if they so wish.
As a rescue specialist I would advise owners trying to sell a business in difficulty to employ their own turnaround advisers before putting the business on the market.

Categories
Accounting & Bookkeeping Cash Flow & Forecasting County Court, Legal & Litigation Debt Collection & Credit Management Factoring, Invoice Discounting & Asset Finance General Interim Management & Executive Support Rescue, Restructuring & Recovery

Companies are failing to manage Debt Collection and Credit terms

Many companies are risking their own solvency and ability to carry on trading because they neither manage their debt collection proactively nor have clear procedures for setting and imposing credit terms with their customers. Consequently they are suffering from late payments, or worse having to write off invoices due to bad debts.
They compound the problem by extending credit to customers who turn out to be a bad risk.  If a customer is itself borrowing money under a factoring or invoice discount facility then the company is depending on their customer’s customers thus creating a pack of cards that if recoursed as a bad debt after 90 days could bring down everyone in a supply chain.
I believe the root of the problem to be the company’s own credit management where I find that very few companies have a robust system in place.
The key steps are to do a credit check on any new customer, to set limits, manage them and regularly review customers’ credit levels.
Getting paid however requires more than just a credit check, it involves starting management of invoice payment long before it is due. Checking the invoice is approved for payment for example, will avoid discovering that the order was not fulfilled exactly as required, or the invoice has not been received! 
Paperwork is crucial. There should be a procedure in place whereby the delivered/ completed order is signed for/ off with a clause on the document that includes written confirmation that the customer’s requirement has been satisfactorily fulfilled.
In addition companies also need late payment procedures. If an invoice remains unpaid after the due date, a robust system for managing late and non paying customers should include putting a stop on processing any further orders and debt collection that may result in litigation, and enforcement if necessary.

Categories
Cash Flow & Forecasting General HM Revenue & Customs, VAT & PAYE Voluntary Arrangements - CVAs Winding Up Petitions

HMRC Insolvency and Enforcement workload

The HM Revenue and Customs insolvency and enforcement department in Worthing appears to have an increasing workload.
I believe there are several likely reasons for this. Businesses are continuing to withhold payment of PAYE and VAT liabilities, using any cash available to prop up their businesses. Fewer Time to Pay arrangements are being approved by HMRC and a lot of TTP arrangements are failing. The Revenue have also have resumed using seizure and distraint as a method for collecting overdue tax.
HMRC in Worthing are picking up the pieces, which probably explains the large number of Winding Up Petitions that dominate the Companies Winding Up Courts.
The only options for saving a company with a WUP are either paying the undisputed amount due or a Company Voluntary Arrangement and the Courts are generally happy to adjourn the Petition at the first hearing to allow time to either pay the bill or propose a CVA.
There is considerable evidence that HMRC are supporting the rescue of companies via CVAs although their focus is on proposals being realistic and incorporating fundamental change to ensure survival rather than continuing the old business model.
I am not yet clear whether the upsurge in HMRC Worthing’s activity relates to the traditional post recession increases in company failures when the market begins to grow, or whether the downturn is continuing and companies are just not able to hang on any longer.
However all of us in the restructuring profession must urge the directors of companies in difficulties to act urgently if they are to save their company, and that they or we as advisers keep HMRC fully informed of progress during the development of rescue plans.

Categories
General

Don’t Waste Your Money Marketing

When business owners run short of cash they get desperate. They pretend nothing is wrong and often they pick up marketing ideas. These activities would have been helpful at an earlier stage. Applying them indiscriminately without understanding the context of how the concepts work as part of a strategy late in the day is disastrous.