Can your advisor advise?

Let us start with a question. If a stranger came up to you and asked to borrow your car for a couple of weeks would you simply hand over the keys, walk off and trust the car will be returned in good order?  Hopefully, your answer will be along the lines of “Don’t be daft” or, quite simply, “No.”

So, why is it then, when confronted with an issue that could have serious financial implications, both on your business and you personally, many still refer to unlicensed or unregulated advisors?

gary-pettit

Recently, I have had the misfortune of coming across two examples. The first was a director who was advised his company was insolvent and steps ought to be taken to place the company into liquidation.  So far, so good.  However, that advice included selling the principal business pre-liquidation where the sale included a tidy £80,000 windfall for the directors!  A fee of over £16,000 was demanded and paid pre-liquidation.  That director is about to be confronted with a number of claims where the liquidator can “Lift the corporate veil” and hold the director personally liable.  The second is of a similar tone and with every day that passes the directors appear oblivious to the fact the advisor is steering them towards personal liability claims and, potentially disqualification from acting as a director.

To make matters worse, when using such advisors you have no guarantee of their knowledge or skill. Furthermore, there is likely to be little (if any) redress in the event of a complaint or challenge to their advice.

The Association of Business Recovery Professionals have been so concerned with this (growing) problem they have published two guides:

“Don’t be misled by advice from an unlicensed advisor”

“My business is in financial difficulty”

These can be found on the Association’s website (www.r3.org.uk) or on our website at www.pbcbusinessrecovery.co.uk/Links/.

Every insolvency practitioner (“IP) has to be licensed through a professional body and are regulated by statute, their professional body and the Government through the Insolvency Service. IPs also have professional guidelines to follow and are insured so there is recourse if things go wrong.

Perhaps the anomaly in the capacity of an IP to advise surrounds personal insolvency. If during a meeting with an individual the IP concludes that individual should go bankrupt and, as a result the IP will not be appointed to act the IP must cease the meeting forthwith because he is not permitted to provide bankruptcy advice!  The exception is if the IP holds a licence issued by the Financial Conduct Authority, which I am happy to say PBC are licensed in that respect.

At PBC there are two IPs, regulated through the Institute of Chartered Accountants of England and Wales and the Association of Chartered Certified Accountants. The directors in both Northampton and Coventry have well in excess of 100 years’ experience between them and, as mentioned, licensed by the Financial Conduct Authority.

Personally, if it was my financial welfare on the line I could not comprehend seeking help and guidance from anyone who is not qualified. That is not me being a control freak; merely seeking the best and most appropriate steer.  That is my view so why would you think differently?

So why not administration?

Insolvent Concept. Word on Folder Register of Card Index. Selective Focus.

There is never a good time but to do this but on 18 December 2015 the (39) employees of a company in Thetford were given the dreadful news their employer was ceasing to trade with immediate effect. As a result they were all being made redundant forthwith and salaries could not be honoured.

Having recognised the company was insolvent the directors concluded the company must take the steps to place it into creditors’ voluntary liquidation. However, with the natural Christmas break it was decided best to commence the liquidation proceedings at the start of 2016.

During the Christmas break information came forward that suggested cessation of trade was premature and on the advice of PBC, Gary Pettit and Gavin Bates were appointed joint liquidators on 4 January 2016. A week later (and having secured the services of some of those employees that had been made redundant) creditors approved PBC trading the business for the beneficial winding up.

Applying a simple business approach PBC turned around losses to record almost £200,000 of pre-tax profits, which assisted in securing a sale of the business as a going concern. Not only does the sale enhance the assets available for creditors but the purchaser has already started re-employing, together with plans for expansion generally.  All good news for creditors and for the economy of the local area.

Many (including fellow insolvency practitioners) have asked why PBC did not advise placing the company into administration, which is regretfully the standard approach. In reply, Gary Pettit has said,

“The directors recognised at an early stage this company was insolvent and acted upon that determination without delay. There were no legal actions or other (creditor) threats that could damage the business at the time so why incur the additional (high) expense of administration?  Furthermore, there are other legal implications that were avoided in liquidation and this enhanced the purchase price, which in turn promoted a higher recovery for creditors.  Trading under liquidation is uncommon but, in this case, everything pointed towards that approach and the outcome is clearly justifying the view at PBC whereby you consider the best advice for the client, irrespective of the costs consequence for ourselves.”

This matter typifies the ability to think outside of the box and the outcome has protected the jobs of many (not to mention enhanced additional employment for others), protected the interests of creditors (including minimising risks under third party liabilities) and preserved a business requirement for the many customers who relied upon this company’s services.

PBC expands in Coventry

In some quarters this may be the worst kept secret but officially we can now announce the retirement of David Halstead Bottomley who has been in partnership with Paul Rogers at Bottomley & Co for over 10 years.

PBC logo

As regards our new beginnings, we can reveal that, as David bows out, Paul and the team at Bottomley & Co, have joined Gavin Bates, Gary Pettit and Kym Carvell of PBC Business Recovery and Insolvency Limited, creating PBC Bottomley.

The team have already moved into new larger premises at the Coventry University Technology Centre. Paul and Gavin are well-known as regular faces on the Coventry & Warwickshire networking circuit.  Paul said, “I have known Gavin for many years and I could always rely on Gavin to give me a straightforward answer, so I am looking forward to working together”.

Paul went on to say ‘It is clear that we have had similar ideas and philosophies. So when this opportunity arose it was the ideal time for bringing together our expertise and to provide an enhanced service to Coventry & Warwickshire’s businesses and beyond.

Gavin said, “We look forward to building on our combined expertise to provide expert advice to all stakeholders on the risks in business and the solutions to insolvency”.  The team at PBC Bottomley are planning a stakeholder event at the end of the summer, so watch out for the invitations.

The Castle (Wellingborough) Limited

PBC logo 1

The joint administrators announced yesterday that The Castle (Wellingborough) Limited is to be placed into liquidation and all theatrical performances and activities have been cancelled with immediate effect.

Joint administrator, Gary Pettit, said, “We have been in constant dialogue with the Council, who have supported The Castle over the past few years, but sadly we have no option but to close the business down. There has been a lot of interest shown in taking the theatre forwards and non-disclosure agreements were issued to those parties, however there are some complex legal and constitutional issues that prevent us from following up this interest and we are unable to meet the statutory purposes of the administration.”

“As a result, the company will be wound up by the court and the property will be handed back to Wellingborough Council. We will be reviewing all advanced bookings we received for future performances and we will be in contact with those people in due course.”

Questions:

  • How many staff will this affect? Sadly, we have had to issue redundancy notices to 31 staff members this afternoon. All salary payments are up to date.
  • Will all costs to performers/suppliers since your appointment be paid in full? All post-appointment costs will be paid in accordance with the Insolvency rules regarding trade expenses.
  • What happens to costs from performers/suppliers prior to your appointment? Current indications are that we will not be able to make any payments to creditors for outstanding debts that arose prior to our appointment. However, the full position will be disclosed to these creditors within the liquidation process.
  • What does ‘liquidation’ mean / what is the process now? The Court will place the company into liquidation, meaning it affairs will be wound down. As the building is owned by Wellingborough Council, it will be secured and handed back to them to manage going forwards. All assets owned by the company will be sold and any funds generated will be distributed in accordance with the insolvency rules. As the company is placed into liquidation, there will also be a statutory investigation pursuant to the Company Directors’ Disqualification Act 1986 – this is a condition of liquidation and does not infer that there was any wrongdoing at this stage.
  • What is happening to the Theatre?  The building will be closed, secured and handed back to Wellingborough Council. It is entirely the Council’s decision as to future use or development. In our personal view it is not viable to run this entity just as a theatre, it needs to be developed as a wider service.  Therefore, we do not anticipate there will be any future theatrical activity for at least 2 years.
  • How many people expressed an interest in The Castle? There were 7 expressions of interest in the business and two further expressions of interest in the property for developmental purposes. We have been unable to secure the Council’s full commitment for future support for The Castle, therefore we are unable to do anything further.
  • What happens to people who pre-booked tickets for performances which are now cancelled? All tickets booked after 13 April 2016 will be refunded in full. We are in the process of contacting these people, but if they have not heard from us by Friday 8th July then they should contact PBC on 01604 212150.  Anybody who purchased tickets before 13 April 2016 will be entitled to claim as a creditor in the administration, and as stated above, it is unlikely we will be able to make payments in this regard.  Alternatively, if the tickets were purchased on a credit card, you should contact your card provider who may be able to issue a refund.

 

 

Goodbye Miss Amos, Hello Mrs Gent!

jenny-amos

Everyone at PBC would like to offer their congratulations to Jenny, who married Matt on 2 June, and wish them a long and successful marriage.

Jenny’s new email address is jennygent@pbcbusinessrecovery.co.uk

 

 

Are CVAs viable?

How many High Street retailers can you think of whose name has been confined to the annals of history? I can think of 15 and that excludes the latest to fall victim, being BHS and Austin Reed.

Cash flow 1

BHS entered into a company voluntary arrangement (“CVA”) with a 95% creditor approval. It included landlords of 87 (out of 164) stores agreeing to a 75% cut in rentals as a compromise for helping the retailer survive.  So why did the CVA fail?  It may surprise readers to learn BHS was the eighth High Street retailer to attempt entering into a CVA as a form of restructuring.  However, only two of them are succeeding.  A big problem for businesses of this scale is the enormous sums of money generally employed.  For example, in the case of BHS they needed to raise £100 million to cover wages and trading costs when as a rule suppliers tighten up credit and supply terms post CVA approval.

CVAs were designed as a tool for restructuring businesses that were enduring short term cash flow issues. Behind it there should always be a core viable business where some operational changes may turn the company fortunes around.  The benefits to creditors include a better return than alternative insolvency procedures and, in most cases, they preserve a customer going forward.

Provided the CVA proposals are realistic the principal risks to a successful CVA are the impact of unforeseen issues (such as a detrimental impact on the field of trade or adverse weather where the company operates in logistics, for example) and creditors imposing onerous demands that will doom the CVA to fail. Many times creditors will simply reject perfectly good CVA proposals due to a lack of understanding.  That is not a criticism of the voting creditors; merely a fact they are being asked to accept not being paid in the short term, the payment they receive is likely to only be part payment and would you also continue trading with the insolvent company as if nothing happened.  The real point is accept the lesser sum offered or face the reality of 100% write-off if an alternative route is demanded.

At PBC we have assisted numerous companies restructure and survive using a CVA as the vehicle. Sometimes it can be a simple case of we can see the wood for the trees.  The more successful outcomes arise where directors/partners seek advice at an early stage before the creditors’ antagonism reaches uncompromising levels where biting off your nose to spite your face may prevail in their voting attitude.

Oh, for those readers still wondering who the 15 retailers I could think of they are……. available on request!

At PBC Business Recovery and Insolvency we can advise you whether a CVA is appropriate. If appropriate, we will firstly assist you with the preparation of the proposal and then act as nominee and convene the meeting of creditors. Should the proposal be approved, we will then act as supervisor.

PBC Business Recovery & Insolvency offers a free one hour consultation to discuss your situation and the possible options available.  Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.