A Round Up of Recent Insolvency Statistics and Perhaps More Trouble Ahead!

Last week The Insolvency Service released the insolvency statistics for the fourth quarter of 2017. Whenever these are published, the newspapers will always look for the story without going into the details.

So for example, the press reported that personal insolvencies in 2017 increased by 9% as compared to 2016, Of course that is correct, but they didn’t report that personal insolvencies fell by 11% in Q4 2017 as compared to Q3.

It is of course true that when inflation is higher than increases in wages then it will have an effect on individuals’ surplus income and in many cases (99,196 in 2017), will lead to personal insolvencies. In the short term this is expected to continue.

Another story that didn’t seem to hit the headlines was a 2.5% rise in corporate insolvencies in 2017 as compared to 2016. First this is a small increase in any event. However, it should also be noted that corporate insolvencies have been at a historically low number for a few years now, so a small increase on what is already a small number is not worth mentioning.

So this all seems like reasonably good news for the economy as a whole. On face value it does but at PBC we are starting to see growing signs of trouble ahead.  Over the last 3 months we have seen a growing number of enquiries and work.  It is fair to say that the retail sector (the high street in particular), is struggling, partially because of the reduction in personal incomes., and also businesses which deal with discretionary spend items (for example, new car sales are down).

At some stage we also expect fallout from the Carillion failure as subcontractors and those further down the chain come to terms with the lost income and future work.

It was also interesting to see that the FCA has started to address the issue of interest only mortgages. The FCA estimate there are 1.67 million full interest only and part capital repayment mortgages in the UK and the most of these will conclude in the next 10 to 14 years. Clearly as these come to a conclusion it will have an effect on those consumers and therefore the economy.  Only time will tell.

As always if you or your business is starting to struggle we would always recommend that you take advice at an early stage. Initial meetings with PBC are free and confidential.

Beware the Unregulated Insolvency Advisor!

Last year R3, The Association of Business Recovery Professionals, launched a campaign to warn about the risk of using unlicensed insolvency advisors and produced a very helpful guide which can be found here.

Business Pressure

The problem of unregulated advisors is not a new one but something that has grown over the last few years. The guide highlights some of the common marketing phrases these firms use, including:

  • We act for you, not your business’ creditors
  • Don’t take advice from an insolvency practitioner, as they only act for your creditors, whereas we act solely for you
  • We can offer you an alternative way to close down your company, leaving you free to launch a new business debt-free
  • We have a way to allow you to continue trading, keep your assets and yet benefit from writing off all your debts

 

Late last year we experienced one situation with a client and so we thought we would share the story as an example of the advice being given by the unregulated advisor.

Our client X Limited had contacted us via his accountant and after an initial meeting it was clear that the Company had in effect ceased to trade and was insolvent. The director wished to wind the Company up and we were instructed to place the Company into liquidation.

The director asked lots of questions about the process and wanted to ensure he was doing the right thing. The liquidation was explained in great depth and all questions were answered.

A new style decision process was called to place the company into liquidation and on the day of that meeting the director arrived very concerned because he had been contacted by an advisor and was now unsure whether the liquidation was right for him.

He provided me with copies of the correspondence he had exchanged with the ‘UK’s leading Unlicensed Insolvency Practitioners & Insolvent Business Acquisition Specialists’. He had discussed the situation on the phone with them and thought he may take on this firm and cancel the liquidation process.

However he was concerned about what they offered. So I reviewed the paperwork he had received. The unregulated advisor’s offer was as follows;

  • The advisor would buy the Company for a nominal £1.
  • The director would resign and the advisor replace him.
  • He would be free of his debts and free to get on with his life.
  • When we read further through the terms and conditions the actual fees would be £5,000 plus VAT or 10% of the liabilities remaining on acquisition whichever is the greater.

 

In this example the unsecured liabilities were £165,619 so a fee of £16,561, although the unregulated firm had agreed a discounted fee of £9,400 plus VAT.  However of those unsecured liabilities £45,000 related to a directors loan account and there were other creditors which the director had personally guaranteed in any event, so he would not be free of some of his debts, as we had already explained to him.

I also pointed out that within the terms that the advisor had provided, whilst the advisor would try to have the Company struck off, he reserved the right to put the Company into liquidation.

In the end the director agreed the liquidation was the best way forward and we were appointed as the liquidator on that day.

To conclude the story I then found out on 8 January of this year the unregulated advisor was placed into provisional liquidation by the Official Receiver to protect the public interest.

We are aware that these advisors commonly chase directors who have received a CCJ and so are aware that the Company may be having cash flow problems.  PBC receives the same data and where possible we contact the accountant to make them aware of the situation so they can explain to the client that they may receive this sort of approach.

I hope this provides a clear example of the benefits of advising clients to seek professional help from a licensed insolvency practitioner.  PBC offer initial meetings which are free of charge and confidential.

Blog written by Gavin Bates

The peril of working with a big company

How many times have you heard the story of a SME securing that “Life changing” contract with a big company?

While many can look back and say that really was a life changer, too many fall into an ever-decreasing financial circle. All is going well until the SME gets told the previously agreed unit price is being revised (usually down) while the double-whammy is the large company also dictates when and how much the SME will be paid. Others, such as those working for Carillion Plc, find they are increasing their exposure while the contractual terms oblige them to continue working (with no guarantee of payment) or face potential claims for (say) unilateral breach of contract.

The Government highlight the late payment interest legislation but their stance is based upon vote winning and not the hard reality of business where the larger corporations will simply ignore such demands with the threat you continue working under their preferred conditions or lose the contract entirely.

I mention Carillion but lest we forget others like British Home Stores, Habitat, Mark One, Toys “R” Us and 56 football clubs that have been subject to insolvency; some multiple times.

It is so easy to sit and write this but when an SME has that large corporation opportunity it can be like offering a starving person food. It takes a brave person indeed to turn down such a business opportunity.

The Achilles heel always seems to centre around the terms of contract. Large corporations will generally lay down their terms.  Our advice would be to consult your solicitor and ensure there are safeguards for the SME in that contract.  Okay, that may be a deal breaker but what do you prefer, a contract that benefits both parties and encourages success or to sit in front of an insolvency practitioner telling a tale of woe as your business ceases to trade because it could not trade under the conditions imposed?  Is that really a tough choice?

Should you need further convincing just think of the 30,000 businesses and the £1.5 billion of unpaid debt Carillion has left in its wake. One of those has already spoken to PBC and is wondering how his business will survive losing the £800,000 Carillion owe.  At PBC we are certain this business is not the first victim of Carillion where the owners now see the life changing experience being one of detriment and loss.

If you require any advice or assistance on mediation or probate matters, or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation. Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.

Blog written by Gary Pettit

A fool with a pen in hand!

The heading pretty much sums up my view of a director who grants a personal guarantee for company debts. I am possibly being a little harsh as giving a personal guarantee can sometimes be a non-negotiable term of contract or borrowing.

In the past I have seen directors who have guaranteed practically every supplier, making you question why they are trading under the vehicle of a limited liability company. Others sign personal guarantees unwittingly; only to discover what they have committed to after things have gone wrong.

One of the biggest misgivings relates to the small loan guarantee scheme. Guarantors are informed the Government will guarantee 75% of the outstanding debt if things go wrong.  The problem is the “Outstanding debt” is any residue debt AFTER the bank have exhausted all avenues of recovery, including enforcement of any personal guarantees.  The last time the Conservative Party were the shadow government I was asked to advise on these schemes and my recommendations actually went into their manifesto.  Unfortunately, the scheme has still not been amended so would-be guarantors of these loan schemes need to be aware of the consequences of your business failing.

Should you be faced with a personal guarantee being pursued the advice must be that you seek independent professional advice without delay. Maintaining a clear and regular dialogue with the guaranteed company can help but an independent advisor can also look into the validity of the guarantee generally and assist you in reaching a mutual settlement rather than staring down the barrel of bankruptcy.

If you require any advice or assistance on any insolvency-related matter then please contact Gary Pettit or Gavin Bates at PBC Business Recovery & Insolvency on (01604) 212150.

What is insolvency and does it apply to me or my business?

Insolvency is a very simple situation that can need a very difficult and sometimes complex resolution. If you find yourself in a situation where you are potentially insolvent you will need to take a long, clear look at things and decide what is the best option. In this video, Kym Carvell looks at what insolvency means for a business or individual. With over 30 years of experience of insolvency, Kym is a respected member of our team who is able to explain financial situations with clarity, honesty and a sympathetic ear. If you think the situations described in this video may apply to you, or your accountant is flagging a potential issue, your best option is to contact us as soon as possible so we can begin working towards a resolution.

 

Leopards do need to change their spots

It is a common phrase but if a leopard does not change its spots then it remains a leopard. Probably the most recent example of that has been British Home Stores who did not keep up with shopping trends.

Now another big name has fell into difficulty with Toys R Us in the United States falling into Chapter 11. For those who are unaware, Chapter 11 of the US Bankruptcy Code is similar to administration in this Country.  It must be emphasised this latest news involves the American division and neither the UK, European, Australian or Asian operations are caught under the current issues.

The (chapter 11) process is being used to enable the company to restructure approximately $5billion of debt, aided by a reported $3billion of new financing. The issue I would be asking about is more of a practical one.  Recent statistics suggest buying habits for toys are changing with estimates indicating 2016 saw 13.7% of toys being acquired on-line, as compared to 6.5% the previous year.  You have to question whether the large warehouse-style outlet is becoming a dinosaur when compared to the laptop in the home.

Whenever we at PBC look at a corporate restructure we first look at trying to identify what are the reasons for the company experiencing difficulties. After all, a leopard that does not change its spots will only endure a reoccurrence of those issues at a later date.  Toys R US say all 1,600 stores and 64,000 employees in America will be preserved, yet retail has seen the on-line competition bite into their business by another 7%in 2016.  I may be guilty of being too simplistic but often at PBC we find it is the simple things that are over-looked and, in the end come back and bite you.

If you require any advice or assistance on any insolvency-related matter then please contact Gary Pettit or Gavin Bates at PBC Business Recovery & Insolvency on (01604) 212150.

When do I need an Insolvency Practitioner?

Do have a dog but try to bark yourself? They (dogs) are pretty good at it and are certainly better than me so I tend to let them do what they are better at!

So, why is there an apparent reluctance to consult with an insolvency practitioner (“IP”) until the very last minute, if at all? I will say now I have a huge amount of respect for those who come to see me.  After all I am a stranger to them and they are being asked to reveal all of their issues on a point of trust I may steer them in the right direction.

Some of the subjects we have been approached to assist on include:

  • A customer has gone insolvent and the creditor is unaware of their rights or need guidance on the meaning of documents received.
  • A business is being handled by an administrator (or liquidator) and you are interested in the acquisition.
  • The IP is telling you that the goods you supplied are going to be sold for the benefit of creditors as a whole but what are your rights?
  • An IP is threatening me with all sorts of monetary claims.
  • My credit card and other domestic debts are out of control.
  • Our company is in financial difficulty.

 

The insolvency business is a highly specialised area with less than 1,100 appointment-taking IPs in the UK. The governing legislation provides some immense powers such as lifting the corporate veil and pursuing company officers personally for losses resulting from their conduct, the rights of landlords or suppliers can be controlled, or even prevented.  Contacting an IP at an early stage may make the necessary route you need to take smoother, it may even mean you have more than one option.  Leaving it until things are getting to a critical level often leads to a very costly and damaging outcome.

For those who need convincing, in a case I am looking at a gentleman tried to handle a bankruptcy petition that had been presented against him in person. Because he did not appreciate the court procedures he ended up being made bankrupt.  His asset value (home and land) is over double that of his principal debts but he is now facing the prospect of losing his home in order to clear the bankruptcy and the costs inherent with bankruptcy.  Had he taken timely advice this could have been avoided and the anticipated cost a fraction of what they are now going to be.

So, the message is clear. IPs are not monsters and are there to bark for you when the highly specialised subject of insolvency comes looming.

If you require any advice or assistance on any insolvency-related matter then please contact Gary Pettit or Gavin Bates at PBC Business Recovery & Insolvency on (01604) 212150.

PBC announce interim dividend from an IVA

PBC are pleased to announce an interim distribution from an individual voluntary arrangement.

The debtor’s proposals were approved by creditors with modifications on 29 June 2016. The debtor has proposed monthly contributions together with 50% of commissions earned over £500 to her creditors, which are currently up to date.  The proposals anticipated dividends to creditors at each anniversary of the arrangement and I am pleased to report payment of a first interim dividend of 7.60 pence in the pound, as estimated, to unsecured creditors.

The debtor’s monthly contributions are continuing to be monitored, together with her commissions earned and a second interim dividend of 10 pence in the pound is expected to be made to creditors at the second anniversary of the arrangement in June 2018.

For more information on voluntary arrangements, please see the video here.

What is mediation?

Alternative Dispute Resolution (ADR) is a very successful method of resolving financial and other business issues before they reach the stage of court action. In fact, the courts will often expect you to have tried ADR and may look unfavourably on you if you have not attempted to resolve your issues prior to legal action. One of the most common forms of ADR is to see an independent mediator who could resolve the problem at an earlier stage and save a considerable sum in legal fees and lost time. In this video, Gary Pettit, our in-house CEDR Accredited Mediator, explains more fully how mediation works, what the advantages are and how you could benefit from working with us to resolve your dispute.

 

What is the difference between Corporate and Personal Insolvency?

When you realise you are potentially in a position where you or your company is insolvent you will need to take action as soon as possible. It is sadly not uncommon for corporate and personal insolvency to be bedfellows, but they are different so you will need to make sure you are approaching it from the right perspective. One of the very early discussions we often need to have with our clients is the difference between their personal and corporate financial responsibilities. Kym Carvell explains how to answer the question ‘what is personal insolvency’ and the difference between that and corporate insolvency in this video. She also discusses some of the confusion surrounding the liability status of sole traders and the common reasons why some companies can become insolvent.