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Banks, Lenders & Investors Debt Collection & Credit Management Insolvency Rescue, Restructuring & Recovery Turnaround

Does the latest banking revelation have an impact on the insolvency profession?

The treatment of SMEs in the aftermath of the 2008 credit crunch by RBS, one of the UK’s two main lenders to small businesses has come under scrutiny this week.
An investigation, by businessman and government adviser Lawrence Tomlinson, has claimed that RBS may have “engineered” firms into RBS’s turnaround division Global Restructuring Group (GRG) so that RBS could generate enhanced revenue at the expense of their SME clients.
Tomlinson claims there was a “systematic abuse” of corporate clients by RBS that allowed them to charge significant fees before appointing administrators who immediately sold the clients’ business assets back to RBS’s property division West Register.
It is assumed that West Register has been required to generate its own profits for RBS by increasing the value of those assets it acquired from clients. This would suggest that the assets were bought at a very low value before they appreciated in value for the benefit of RBS.
The whole sorry saga is now being investigated by the Financial Conduct Authority and the Prudential Regulation Authority following a referral by Business Secretary Vince Cable.
While the focus has so far been on banks, the saga raises the question as to whether there has been a conflict of interests among some insolvency practitioners (IPs), who following an introduction by RBS to clients then sold the clients’ assets back to RBS under an Administration Pre-pack procedure.
While such realisations may have been legal the practice stinks and reminds me of the activities of HBOS’s Impaired Assets division in Reading which resulted in senior managers being charged with conspiracy to corrupt, fraudulent trading, money laundering and blackmail. Fortunately none of the IPs involved in that saga was charged, but it would seem that their role was not investigated.
All this suggests that the directors in these situations are not getting independent advice.
It would also seem there is a need to review the relationship between banks and their panel IPs?

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

Why isn’t more effort made to rescue failing businesses?

It is almost 30 years since legislation in the Insolvency Act 1986 introduced Administrations and Company Voluntary Arrangements (CVAs) as mechanisms intended to help with turning around failing businesses.
This legislation followed the 1982 Cork Report, which recommended procedures for trading out of insolvency.
Despite this and further legislation, however, there has not been any noticeable increase in rescue attempts where Insolvency Practitioners have been brought into companies in distress.
We explore why this should be and whether anything can be done to encourage more banks and IPs to embrace the rescue culture so that more businesses can be saved.
To see the full article please visit: Insolvency Today at http://bit.ly/17TpoJj or join the lively Insolvency Today LinkedIn discussion here http://linkd.in/1cBA6vD

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 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.