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Banks, Lenders & Investors Cash Flow & Forecasting County Court, Legal & Litigation Finance General Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Insolvent Companies can Survive a Winding-Up Petition

overcome a Winding-Up PetitionIt is possible to get a Winding-Up Petition dismissed even when a business is insolvent and does not have the funds to pay off the creditor(s) who have brought the matter to court.
If a company is insolvent and therefore unable to pay its debts on time, it may still be a viable business with a perfectly good product or service to sell.
A review of the accounts, the cash flow, the processes and scope for restructuring and other initiatives to improve profits will need to be carried out by a turnaround specialist who will also prepare an appropriate turnaround plan.
The turnaround plan forms the basis of demonstrating viability such that it is possible to persuade creditors to accept deferred payments.
The turnaround plan is incorporated into a formal proposal to creditors for a Company Voluntary Arrangement (CVA). In addition to the turnaround plan, a CVA Proposal will include proposals for debt repayment and in some cases for debt write-off.
A CVA is a formal proposal where the process has to be carried out in defined steps to comply with the Insolvency Act and should only be done with the help of a Turnaround or Insolvency Practitioner.  While approval is required from 75% of the creditors who vote, it is arguably in the creditors’ interests to agree such an arrangement as they are more likely to get their money than they would be if the company were Wound-Up.
If pursuing a CVA while a Winding-Up Petition is outstanding, this can be adjourned to allow time for the CVA Proposal to be prepared and the formal process to be followed but any adjournment will leave little time for delay so again specialist help is needed.
Once a CVA is approved the Winding-Up Petition is normally dismissed.
In summary a CVA offers the opportunity for an insolvent company to survive a Winding-Up Petition.
You can find out more about Winding-Up Petitions and CVAs in the free articles that are available online in the ‘K2 Knowledge Bank’ or via App Stores in the ‘Turnaround’ App.

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

Independent insolvency advice

An independent adviser can help a business’ directors by identifying what is essential to and special about their business and its future.
If a company is insolvent and its directors are considering their options then an independent adviser is vital, as we argued in articles in Business Review in today’s City A.M. and in last Sunday’s Telegraph.
Directors need someone who can assess whether and how their company can be saved, and whether it is via a turnaround or transformation. This is different from advice on what is in the bank’s best interests.
Also, as Tyrone Courtman, of PKF Cooper Parry, points out in the same article, directors need guidance from someone who is not subject to conflicting interests.
Do directors need their own independent advisor when a bank introduces its advisors?
See article page 8: Transforming Business Fortunes in Business Reporter

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Banks, Lenders & Investors Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery Turnaround

Update on Interest Rate Swaps missold to SMEs

 

The May deadline for banks to compensate thousands of small businesses for the misselling of Interest Rate Swaps (IRS) has now past and banks would seem to want everyone believe that they have resolved matters within the deadline.

But campaigners Bully Banks say that many SMEs will miss out on compensation arguing that banks have rejected most claims for consequential loss.

The compensation scheme imposed by the Financial Conduct Authority (FCA) on the banks allowed for basic redress – a refund for excessive interest paid plus 8% interest. However, affected businesses could also claim for such things as lost profit and legal expenses (consequential loss).

Bully Banks Chairman Jeremy Roe was quoted recently as saying: “I don’t know of any business that has successfully claimed for consequential loss and received reasonable compensation from their bank”.

Meanwhile the British Bankers’ Association claims that banks have met their obligations by informing businesses of the IRS compensation they may be owed by May’s end. The claims for consequential loss are being dealt with case by case but would seem to be being dragged out.

It is three years since Bully Banks first began their campaign into IRS misspelling.  That is a long time for a small business to wait for recompense. 

But for many it seems that the waiting is still not over and the outcome remains uncertain.  In the meantime many such businesses would be well advised to prepare for the worst by revising their business plans with the help of a turnaround adviser rather than wait in hope for a big payout.

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

RBS – whitewash or exoneration?

 

The first of the investigations into behaviour by the Royal Bank of Scotland (RBS) following publication of the Tomlinson Report in November last year has found “no evidence” to back up the most serious allegations that the bank systematically put customers out of business.

Clifford Chance does not however completely exonerate RBS in its dealings with customers, only the allegation of a deliberate policy – a copy of the report is available at  http://bit.ly/1ljINfK.

The report by the law firm Clifford Chance was commissioned by RBS after Tomlinson, adviser to the Department for Business, Innovation and Skills, investigated the behaviour of the RBS-owned turnaround unit, Global Restructuring Group (GRG).

His report accused GRG of systematically charging large fees to small businesses, thereby putting them out of business and generating profits for the bank.

While there is speculation that RBS could sue Mr Tomlinson for libel, for damage to the bank’s reputation, it is likely that RBS will wait for the FCA report before responding formally

Given that Clifford Chance are a panel firm of advisers to RBS and the limited scope of their investigation, it will be interesting to see if their findings are supported by the FCA whose report is due to be released much later this year.

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

Transformation of the High Street

 

 So far the end of year trading results are revealing a mixed picture of High Street retail winners and losers.

While Debenhams saw profits drop, John Lewis, House of Fraser and Next have all reported healthy overall profit growth at 6.9%, 7.3% and 7.7% respectively. Most significant in all three cases was the increase in online sales with Next recording a 21% increase, John Lewis 23% and House of Fraser a colossal 58%.

One of the most encouraging stories is the turnaround in the fortunes of the clothing store Bonmarche. Its  400 stores, then owned by Peacocks, went into administration in 2012 and were bought by private investors for c £10 million. 

Restructuring involved closing “dozens” of unprofitable stores and renegotiating rents on others, classic turnaround basics.

One significant factor in this success story that has seen the business now valued at more than £100 million was the laser-like focus of new CEO Beth Butterwick identifying its niche customers and then catering specifically for them.

Bonmarche identified its market as the 40-plus woman, defined how this group preferred to shop and provided clothes they wanted to buy, with the help of designer David Emmanuel best known for designing Princess Diana’s wedding dress.

Another example of a terrific turnaround is Jaeger the fashion retailer that was bought by Better Capital from Harold Tilman in 2012. 

Jaeger has reported a sales jump of 23% in like for like sales for the 13 weeks to 28 December 2013 when compared with 2012. These include a huge increase in online sales which also offered a click and collect service.

Such examples are proving that the High Street is undergoing a transformation.

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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

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

Economic recovery and funding growth

A recent survey by the FSB reported that 47% of its members had been refused loans in the last three months to September and 56% felt that banks did not care about SMEs.
At the same time, the Chief Executive of the British Bankers’ Association warned that requiring banks to improve their leverage ratio (money lent out in relation to capital reserves) could “do more harm than good”. Contrast this with Sir John Vickers, who was involved in drawing up post-crisis reforms to the banking sector and his arguing that the suggested ratios are still way too low and risky.
And, banks are still facing an estimated £10 billion in potential payouts to businesses mis-sold interest rate protection and hedging products.
No wonder that banks aren’t lending to SMEs.
In the meantime large business are estimated to be sitting on £700 million of cash reserves in readiness for funding development and growth.
What are small businesses supposed to do?
Firstly, there are other sources of finance besides the banks and K2 has a free, comprehensive guide to the options. You can find it at http://www.k2finance.co.uk
Secondly, and more importantly given the prospect of over trading as the recovery gathers pace, now is the time to ensure that the business model is right to fund growth and avoid running out of cash.
Advice from restructuring professionals is not exclusive to when a company is insolvent.  Their experience and solutions can also be used to help SMEs grow.

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

Are we doing enough to publicise the benefits of business rescue and turnaround?

A recent discussion in the LinkedIn group, Restructuring and Turnaround Management, asked whether anyone in the turnaround industry ever received solid referrals from the banks.
Although the majority were responding from the USA, it seems there is little difference between the two sides of the “pond” when it comes to the banks.
The general consensus was that most lenders were either not interested in considering the options for rescue and turnaround for struggling clients or preferred instead to “manage” loans themselves until it is too late, when they call in the insolvency practitioners.
This comment from Al Jones in the US was typical of what he saw as the banks’ view: “we can handle this, maybe it’ll fix itself especially if we bluster and threaten the borrower, or it’s unsalvageable.”
But the question is how can a bank’s staff with no direct experience in small business or business turnarounds make such an assumption?
UK-based Andrew Strachan, pointed out that an inevitable consequence of this attitude was that while interest rates remained low the banks continued to prop up zombie businesses rather than risk losses, thus diverting resources away from healthy, growing companies with a real need for investment.
At K2 Business Rescue we too have seen very few referrals from banks in our 22 years as a firm specialising in turnaround. We understand that there are good reasons why banks do not initiate a turnaround or recommend one to their clients. They mainly relate to fear, fear that it may result in financial risk to the bank or damage to its reputation. This fear is valid in a world that wants to blame and possibly sue someone. And who could blame them if it goes wrong? Creditors who aren’t paid, employees who lose their jobs, or they may attract some bad press. A big risk.
A further reason for a lack of engagement in turnaround is the view that banks no longer behave as long-term partners with a client. The bank-client relationship has become more transactional. This works both ways, why should a bank invest further time or money in a client who might take their business away after the business has recovered?  
Business rescue and turnaround focuses on survival whereas all too often the insolvency practitioner makes more in fees out of a formal insolvency procedure. The banks understandably use their trusted (panel firm) insolvency practitioners to do reviews on their behalf but the system is flawed if the insolvency practitioner’s interest lies in a formal insolvency appointment. The banks know this and so the number of business reviews has declined, but it has not yet been replaced with an alternative that focuses on rescue and turnaround.
…..Or perhaps we in the turnaround profession need to get our message across more loudly and clearly?
 

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Debt Collection & Credit Management General HM Revenue & Customs, VAT & PAYE Rescue, Restructuring & Recovery Turnaround

HMRC Taking a Tougher Line on Debt Recovery

Evidence is emerging that HM Revenue and Customs is adopting a tougher approach to PAYE, VAT and tax arrears and increasingly using its powers of distraint to take over control of the goods, stock and assets of businesses.
In one example this week, just two hours after K2 was appointed by a company in difficulties, HM Revenue and Customs (HMRC) officers appeared at the premises and levied distraint on all the company’s assets and stock. There are similar stories from other turnaround and restructuring professionals.
The issue of a distraint notice (a C204 notice, also called a distress or walking possession notice), under HMRC powers allows it to take control of everything seized and while it does not necessarily remove property at that point, it means that the company cannot continue trading and is effectively put out of business because it is prevented from using its stock and cannot either sell or give away anything that has been distrained.  It normally has just five days to comply.
This walking possession is used rather like Winding Up Petitions (WUPs) when HMRC has exhausted attempts to communicate with the company.  Most companies are shocked when HMRC follows through with the actual action because it appears to come as a surprise, but when they review their correspondence they should not have been.
If the company does not pay or come up with alternative proposals, HMRC or an appointed agent can then take everything away for sale.
This hardline change of tactics comes after figures, published end of January, showed that the HMRC rejection rate for Time to Pay (TTP) arrangements had climbed from 2.7% in 2009 to 5.8% in 2010.
TTP is a very real solution for companies that cannot pay. While for the last two years HMRC has supported government policy of providing a light touch approach to businesses in difficulty, it is responsible for collecting arrears and not for saving businesses.
If a company receives a notice of intention to either wind up or distrain it should not delay in seeking the services of insolvency or turnaround advisers.