Archives for posts with tag: Insolvency

Are any of Birmingham’s MPs addressing counterproductive insolvency law and private finance investment practices?

chantrey vellacott dfk

Constructive roles played by firms like accountants Chantrey Vellacott and lawyers Pearson Knightley offer a lifeline to the businesses they administer and should become the norm rather than the exception.

pearson knightley

When high commercial rents and over-late payments lead to cash-flow problems for small businesses, administrators can declare them bankrupt, taking their payment from the firm’s assets first, with the banks following. There is often little or nothing left for all those unsecured creditors who have actually supplied the company with goods and services.

‘Insolvency practitioners’ can offer small & medium businesses a lifeline or deal them a death blow. The best will go to great lengths to ensure that the business continues to operate, either through a merger or under a new owner.

Nick Starling of General Insurance points out in the FT that timing is important: “A short pause in the process is unlikely to affect a business that otherwise has a good future with restructuring. Action needs to be before the event, not afterwards when it is all too often too late”.

‘Investment’ with a hidden agenda can precipitate business failure.The Campaign for Regulation of Asset Based Finance is preparing a submission to the Parliamentary Commission on Banking Standards , focussing on the “unacceptable behaviour” of some private investment firms which, it is alleged, effectively force ‘viable’ companies into administration.

In one instance, the Telegraph reports, David Williams, of insolvency advisers Pearson Knightley, was appointed by a small startup business, Crystal Print, which he described as a very successful little company, with £30,000 a month in invoices.

He was at the factory when the insolvency worker arrived and halted the process by locking the doors, saying that its problems had started when it started dealing with an invoice finance firm.

On a locally-based website this week is the news of how the constructive actions of administrator Chantrey Vellacott DFK brought about a successful merger.

 

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It was good to see Cllr John Clancy raising an allied subject in the Birmingham Post. As he points out: “If you are a small business, especially if you’re a sole trader or small partnership, a delay in the basic payments you are owed can be commercially fatal.”

Nick Starling, Director of General Insurance, also wrote last year deploring the injustice of our insolvency system where, “overnight, small businesses that have been trading in good faith find it an uphill struggle to get bills paid or to retain title to goods they have supplied.”

Cllr Clancy reminds us that when LDV went into administration the workers had to wait for two years before  getting paid: “Others who, to be frank, could better absorb losses found themselves paid out first.”

The first claims to be satisfied are those of ‘secured creditors’ the banks and the administrators; the people who have actually done the work and supplied the goods often get little or no payment.

Ensure that business insolvency does not radiate catastrophically outwards into the commercial and social community

Clancy’s suggestion; “Well, let’s now build an insolvency legal framework which redresses the balance and provides that just being a secured bank creditor, especially a bailed-out one, does not give you first bite of the cherry . . . and ensure that business insolvency does not radiate catastrophically outwards into that business’s commercial and social community.

Sauce for the banking goose is sauce for the SME business sector

He proposes that “Just as we saved the banking system in its entirety, so should we adapt insolvency laws to ensure that wider commercial and social communities are saved in the event one business’s failure. What’s sauce for the goose…..?”

As taxpayers’ intervened in the banking markets to protect the entire system by a whole range of measures at the time of the crisis and since, Clancy suggests that “until taxpayer support is withdrawn from the system in its entirety . . . the ranking of the banks in the pecking order on insolvencies should be downgraded a few notches.

Banks are ‘veritable commercial basket cases’ with ‘turbo-charged rights’ when it comes to insolvency

Pre-empting critics who will say that we should let the free market decide and those unable to cope with the normal exigencies of business should be best left to go to the wall, he points out that it’s not survival of the fittest when it comes to bailed out banks: they are veritable commercial basket cases, but they get turbo-charged rights when it comes to insolvency.

Cllr Clancy’s recommendation: “ I would suggest that paying out swiftly and without question to ordinary employees what they are owed should be the permanent priority in insolvency in any event. The LDV workers should have had their money years ago.”

 

Cllr. Clancy’s Post article is now online.

 

Since the loss of its ‘preferred credit status’ in 2003, HMRC is said to have ‘ramped up’ distraint visits.

Accounting Web reports that the number of occasions its powers have been used to seize assets has quadrupled in just two years, rising to 7,004 in the twelve months to April 2011 from 1,675 cases two years ago. The assets are typically sold off at ‘fire sale’ prices that fail to cover the amount of unpaid tax and reduce the chances of other creditors being repaid.

Stuart McNeill, from law firm McGrigors, believes that: “By barging in and selling the assets of a late paying company without making a proper commercial assessment of the firm’s medium term viability, HMRC risk sacrificing full payment in a few months’ time for far less cash up front.”

Seizing the assets of businesses that might otherwise recover is driving many to insolvency and directly contradicts HMRC’s ‘Time To Pay’ scheme, which aims to support small businesses through the negotiation of late payments.

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Banks who now prematurely push the administration button should be made to ‘pause for thought’

Cllr John Clancy writes:

“It has been a nauseating feature of the last few years that the banks who went belly up themselves are less than sympathetic when it comes to others simply hovering around insolvency.

“The rights and entitlements of being first secured creditor means that the bailed-out banks in particular, who are desperate to build up their pretend capital bases, are more likely to push the liquidate or administration button in order quickly to get out of a business, crystallising a debt asset as much as possible short-term, regardless of the wider commercial or employee consequences.

If they realised it wasn’t that easy, and that others might be paid out before them, then perhaps an appropriate pause for thought by the bank might be a good thing for the entire system.

Yesterday the BBC website reported that, in a leaked letter to David Cameron and Nick Clegg, Vince Cable proposes that RBS should be turned into a new “British business bank” – but the measures proposed by John Clancy would be far more beneficial to the country’s SMEs, averting or better ordering many business insolvencies which “radiate catastrophically outwards into the commercial and social community”.