So, we finally have the statistics for 2011 business insolvencies. Much has been made of the last quarter's results which show an increase but the important thing is to look at the figures over a full year. Look at these figures:
CVAs in 2010 765
2011 767
Administrations 2010 2831
2011 2808
Receiverships 2010 1302
2011 1397
Liquidations 2010 16045
2011 16871
As predicted, the figures are pretty flat with a bit of a jump in liquidations which is most apparent in the retail and leisure sectors. Receiverships have gone up also but this does include commercial property that is subject to an LPA receivership appointment, so is not strictly a corporate insolvency event.
Keith Steven said, "the recovery in growth in the UK has not materialised and ironically that is when insolvency numbers for companies will rise. Having said that KSA Group is seeing a large increase in winding up petition action by HMRC (witness Portsmouth City) and we, as a firm, are expecting to double the number of CVA deals this year compared to 2011".
Hopefully more companies will turn to CVA as the best rescue tool.
Friday, 3 February 2012
Madhouse in Administration
Madhouse, the fashion retailer, has gone into administration today with 700 jobs at risk. Alexander Lawson Jacobs has been appointed administrator. Deluxe Retail, that traded as Madhouse, had a turnover of £29m but made a loss of £231,000. Last year, according to Insolvencynews.com the firm had a deficit in the accounts of £39k but the auditors felt it was viable as a going concern as the main creditor was supportive of the firm. We suspect that this is no longer the case and the firm had little choice. No winding up petition was advertised.
We will post more details when we know more. If you are an employee of the firm then please refer to our help for employees page
If you are struggling retailer remember that administration is not the only option. A CVA can help you restructure the firm and you stay in control.
We will post more details when we know more. If you are an employee of the firm then please refer to our help for employees page
If you are struggling retailer remember that administration is not the only option. A CVA can help you restructure the firm and you stay in control.
Thursday, 2 February 2012
Micro Anvika Proposes CVA
Micro Anvika, the Tottenham Court Road based electrical retailer, is proposing a company voluntary arrangement in order to restructure and survive according to The Register Magazine.
The retailer has 7 stores and a concession in Harrods but it has been hit hard by the fall in consumer spending on some big ticket items, as well competition from the internet. The proposal will mean that it can close some of its loss making stores. The company turned over £30m last year but that was down from £43m 2 years previously. The company accounts show that it made a loss last year of £993,000. The overall debts of the company are not known at this time.
In order to persuade the creditors to agree to the restructure the board of directors will not be taking any pay rises or bonuses and the shareholders will not receive any dividends. This is according to the letter to creditors that was leaked to The Register. Quite right! If the directors and shareholders are to ask the creditors to take a hit on their debt then they need to be seen to be doing all they can to support the business. A CVA requires grit and determination from the directors in order to succeed.
The creditors meeting for the CVA is in March.
The retailer has 7 stores and a concession in Harrods but it has been hit hard by the fall in consumer spending on some big ticket items, as well competition from the internet. The proposal will mean that it can close some of its loss making stores. The company turned over £30m last year but that was down from £43m 2 years previously. The company accounts show that it made a loss last year of £993,000. The overall debts of the company are not known at this time.
In order to persuade the creditors to agree to the restructure the board of directors will not be taking any pay rises or bonuses and the shareholders will not receive any dividends. This is according to the letter to creditors that was leaked to The Register. Quite right! If the directors and shareholders are to ask the creditors to take a hit on their debt then they need to be seen to be doing all they can to support the business. A CVA requires grit and determination from the directors in order to succeed.
The creditors meeting for the CVA is in March.
Wednesday, 1 February 2012
The Discovery Stores Closing Down?
I have been receiving emails from people in relation to a firm that operates gadget shops called The Discovery Store Limited. A number of people have complained that the staff have not been paid as the firm has said that it is going into administration and they should claim their money from the government. It is true that in the event of insolvency unpaid wages can be claimed from the national insurance fund. For more details please see our page on redundant employees However, my research so far has not indicated that it has gone into a formal insolvency procedure and so no claim can be made. If the firm is compulsory wound up then a claim can be made, however this may be some months away. The firm has had a couple of CCJ's against it but that is all.
If the business owes money to HMRC or trade creditors they may petition to wind the company up. Employees may try and get an employment tribunal to award them their pay. If the firm subsequently goes insolvent then any award will have to be recovered from the remaining assets if any.
The firm says it has 20 stores but lists only 5 as it appears that some are being closed down after the Christmas trading period. So what, if anything, wrong has been done.
Has the firm been trading wrongfully? This is difficult to ascertain but they need to have been wilfully piling up debt knowing that there was no chance of paying the creditors for this to be the case. It could be argued that they are closing down stores to avoid exactly that.
To see what the staff have been saying then read this
If the business owes money to HMRC or trade creditors they may petition to wind the company up. Employees may try and get an employment tribunal to award them their pay. If the firm subsequently goes insolvent then any award will have to be recovered from the remaining assets if any.
The firm says it has 20 stores but lists only 5 as it appears that some are being closed down after the Christmas trading period. So what, if anything, wrong has been done.
Has the firm been trading wrongfully? This is difficult to ascertain but they need to have been wilfully piling up debt knowing that there was no chance of paying the creditors for this to be the case. It could be argued that they are closing down stores to avoid exactly that.
To see what the staff have been saying then read this
Tuesday, 31 January 2012
Tax Arrears on VAT and PAYE
It is sometimes the case that directors blame HMRC for their business failure. In fact calculating tax owed is not a massive administrative burden expecially on PAYE and it should not be in dispute. As such the inability to pay it is more a reflection on the business viability. Inability to pay usually means the business is insolvent
As we have covered many times before, if the Revenue and Customs issues a petition it is almost invariably because it has run out of options. HMRC does NOT issue petitions unless it is a last resort and patience with the debtor has run out. Alternatively HMRC may send a letter threatening distraint. We are seeing this as a more common form of collection as the thought of bailiffs turning up on the premises focuses minds.
Generally, to get to that stage the debtor needs to have failed to make payments ( tax arrears ), then asked for a Time to Pay Deal (TTP). These have usually failed and the debtor has asked for a new deal. Once again, because the directors fail to cut costs and drive change, it fails and once again a TTP has failed.
As a director, if the company has had a time to pay deal or deals which have failed and you cannot keep up with the demands of the HMRC for repayment, look at a company voluntary arrangement as a permanent long term solution.
For example if you owe £100,000 to HMRC, it will usually allow say 10 months to repay the arrears. That's £10k per month. Can your business generate enough profit, say £100k profits to pay £100k back in JUST 10 months?
Whereas in a CVA you may pay back, say, £1k per month for 60 months. Can you afford £1k per month? This is surely better than falsely promising to pay £10k?
In addition, a CVA allows rapid cost cutting, redundancies can be paid by Government, you can exit onerous contracts and remove problems like unwanted leases quickly.
So don't blame HMRC for the company's problems, more often than not solutions like a CVA are the best option and HMRC WILL SUPPORT THEM!
As we have covered many times before, if the Revenue and Customs issues a petition it is almost invariably because it has run out of options. HMRC does NOT issue petitions unless it is a last resort and patience with the debtor has run out. Alternatively HMRC may send a letter threatening distraint. We are seeing this as a more common form of collection as the thought of bailiffs turning up on the premises focuses minds.
Generally, to get to that stage the debtor needs to have failed to make payments ( tax arrears ), then asked for a Time to Pay Deal (TTP). These have usually failed and the debtor has asked for a new deal. Once again, because the directors fail to cut costs and drive change, it fails and once again a TTP has failed.
As a director, if the company has had a time to pay deal or deals which have failed and you cannot keep up with the demands of the HMRC for repayment, look at a company voluntary arrangement as a permanent long term solution.
For example if you owe £100,000 to HMRC, it will usually allow say 10 months to repay the arrears. That's £10k per month. Can your business generate enough profit, say £100k profits to pay £100k back in JUST 10 months?
Whereas in a CVA you may pay back, say, £1k per month for 60 months. Can you afford £1k per month? This is surely better than falsely promising to pay £10k?
In addition, a CVA allows rapid cost cutting, redundancies can be paid by Government, you can exit onerous contracts and remove problems like unwanted leases quickly.
So don't blame HMRC for the company's problems, more often than not solutions like a CVA are the best option and HMRC WILL SUPPORT THEM!
Friday, 27 January 2012
Why do profitable firms become insolvent?
Great video from MoneyWeek explaining in simple terms how a "profitable" company can run out of cash and become insolvent. The video explains the concept of working capital and overtrading. Although it is made with an investor in mind it would be advisable for ambitious directors of growing companies to take note.
http://www.youtube.com/watch?feature=player_embedded&v=d0FY4xRT_yo
http://www.youtube.com/watch?feature=player_embedded&v=d0FY4xRT_yo
Directors' duties in insolvent companies
In law, if a company is insolvent then the directors have a duty to act in the best interest of the creditors and not the shareholders. As such, the first thing to establish is whether the company is insolvent. We have an online insolvency test to help you establish this. If your business is insolvent then you must act to ensure that you do not make the creditors situation worse. So if you are in a hole with tax arrears, piling up debts to trade creditors then stop digging and take advice!
Some directors are guilty of wilfully piling up debt with no hope of paying back creditors and by doing this they are risking an action for wrongful trading that can lead to disqualification and personal liability for the company's debts.
Please read our page on duties of directors of insolvent companies to help you understand your position and your options.
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