It is 2 years since the run on Northern Rock and one year since Lehman Brothers failed. Remarkable how fast this year has gone!
In that time RBS effectively went bust, Bank of Scotland was rescued by Lloyds, itself now struggling with the burden; interest rates are at all time lows, printing money is seen as a great solution to preventing financial meltdown and some £175bn has been pumped into the economy alongside the cost of bank rescues. Yet growth is nowhere to be seen.
When you read the paragraph above, it brings home just what a huge hit the UK ecomony has taken, yet like a punchdrunk boxer it keeps swaying along from crisis to recovery to crisis. Optimists claim that the ecomony is growing well, pessimists wonder if a second leg to the recession is imminent.
It's a question we will never know the answers to, but I wonder what would have happened if the government had not rescued the banks and let capitalism work?
Morever, how will we pay for all of this desperate stuff?
The Sunday Times reported yesterday that 60% of voters expect severe spending cuts alongside tax rises from June 2010 (after the general election).
Some hangover ahead?
Monday 14 September 2009
One year on from Lehman
Labels:
Bank of Scotland
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Lehman Brothers
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Northern Rock
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RBS
Wednesday 9 September 2009
"You won't get a company voluntary arrangement approved by HMRC".
To be honest we are getting really angry about the incompetence and arrogance of certain UK insolvency practitioners towards the concept of company voluntary arrangements.
In the last month I have heard this ridiculous claim in 4 separate cases/potential clients/banks.
All statements were from IP's from large firms who frankly should know better. Or if they don't it suggests to me that they simply have never bothered to use a CVA properly or they have followed the daft view that 100% of the debt MUST be repaid in the shortest time possible. Or, being cynical, they wanted the bigger fees and control of administration.
This is not true, factually incorrect and basically misleading clients, creditors and banks.
In our long experience it is true to say that the Combined Voluntary Arrangement Service (VAS HMRC) is tough but it is always fair. Indeed the service has an online guide to its approach here
http://www.hmrc.gov.uk/manuals/insmanual/ins10105.htm
This open and fair approach to CVA's includes accepting well proposed CVA's that offer the best deal possible for creditors. Remuneration levels of directors will be scrutinised and if necessary reduced as a condition of its support. If excess cash is generated by say year 5, they will ask that some of that is paid to creditors.
All fair enough.
The VAS does not expect a CVA to offer 100p in £1 in 2 years as many practitioners falsely claim. Indeed the Insolvency Act is not prescriptive about dividend levels or time frames anyway. The framework created by the '86 Act is deliberately loose to allow ANY deal to be put in front of creditors, who decide by majority vote whether to accept, modify or reject that deal.
This framework highlights the brilliance of the CVA legislation to my mind.
For proof of this being more than a rant by yours truly, please see an extract from the VAS (HMRC) guidelines below in italics. I have underlined the key points.
INS10167 - Introduction to Voluntary Arrangements
A fair and optimum offer is made to creditors
A 'fair and optimum offer is made to creditors' means that there is
•no unacceptable expenditure
•the arrangement cannot be improved upon
•all obligations under the arrangement are achievable.
Companies need working capital and some leeway for investment to keep them competitive and for contingencies such as bad debts
•saying 'no' to unnecessarily high drawings or personal expenditure does not compromise the rescue culture.
It simply requires those running a business to adjust their personal expectations to their current circumstances.
•support of a proposal is not dependent upon receipt of a minimum level of dividend.
•Judge each case separately on its merits and the available information.
If the criteria are satisfied accept it on the basis that saving viable businesses will stimulate enterprise and ultimately generate more revenue.
Explore arrangement prospects yet remain fair to those who pay on time
So the next time an insolvency practitioner says, "You won't get a company voluntary arrangement approved by HMRC" or you must pay 100p in £1 in say 3 years", tell them they are wrong.
In the last month I have heard this ridiculous claim in 4 separate cases/potential clients/banks.
All statements were from IP's from large firms who frankly should know better. Or if they don't it suggests to me that they simply have never bothered to use a CVA properly or they have followed the daft view that 100% of the debt MUST be repaid in the shortest time possible. Or, being cynical, they wanted the bigger fees and control of administration.
This is not true, factually incorrect and basically misleading clients, creditors and banks.
In our long experience it is true to say that the Combined Voluntary Arrangement Service (VAS HMRC) is tough but it is always fair. Indeed the service has an online guide to its approach here
http://www.hmrc.gov.uk/manuals/insmanual/ins10105.htm
This open and fair approach to CVA's includes accepting well proposed CVA's that offer the best deal possible for creditors. Remuneration levels of directors will be scrutinised and if necessary reduced as a condition of its support. If excess cash is generated by say year 5, they will ask that some of that is paid to creditors.
All fair enough.
The VAS does not expect a CVA to offer 100p in £1 in 2 years as many practitioners falsely claim. Indeed the Insolvency Act is not prescriptive about dividend levels or time frames anyway. The framework created by the '86 Act is deliberately loose to allow ANY deal to be put in front of creditors, who decide by majority vote whether to accept, modify or reject that deal.
This framework highlights the brilliance of the CVA legislation to my mind.
For proof of this being more than a rant by yours truly, please see an extract from the VAS (HMRC) guidelines below in italics. I have underlined the key points.
INS10167 - Introduction to Voluntary Arrangements
A fair and optimum offer is made to creditors
A 'fair and optimum offer is made to creditors' means that there is
•no unacceptable expenditure
•the arrangement cannot be improved upon
•all obligations under the arrangement are achievable.
Companies need working capital and some leeway for investment to keep them competitive and for contingencies such as bad debts
•saying 'no' to unnecessarily high drawings or personal expenditure does not compromise the rescue culture.
It simply requires those running a business to adjust their personal expectations to their current circumstances.
•support of a proposal is not dependent upon receipt of a minimum level of dividend.
•Judge each case separately on its merits and the available information.
If the criteria are satisfied accept it on the basis that saving viable businesses will stimulate enterprise and ultimately generate more revenue.
Explore arrangement prospects yet remain fair to those who pay on time
So the next time an insolvency practitioner says, "You won't get a company voluntary arrangement approved by HMRC" or you must pay 100p in £1 in say 3 years", tell them they are wrong.
Labels:
Administration followed by CVA
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CVA
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HMRC
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VAS
Wednesday 2 September 2009
Banks hoard cash, lending to business down £8bn
Well who would have thought it? Banks get rescued, money gets pumped into the system (QE) and the next thing you know is, lending to businesses and consumers falls!
In July net lending to non bank businesses fell by a staggering £8.4bn in July. The reason, bad debts and the bank's fear that much more bad debt is in the pipeline.
Vicky Redwood, UK economist at Capital Economics, noted Bank figures that showed a £365m, or 40pc, increase in write-offs on conventional corporate debt and £250m rise in write-offs on unsecured lending in the second quarter.
"While the biggest losses on 'toxic' assets may be behind us, recession-related losses on conventional loans are only just starting to come through," she said. "These losses are likely to erode much of the capital that banks have raised. Accordingly, it is understandable that banks are being cautious about lending more, even though their funding costs have fallen.
So what is going to happen in the next 2 quarters for companies looking for working capital support? I guess more of the same is on the way. Tighter business lending will inevitably lead to more pressure on businesses to cut costs, they'll avoid taking sales where they worry about getting paid, more redundancies will result and ultimately more business closures.
Would it not have been easier to let the banks go bust or agree to rescue them on condition that there was full and frank disclosure on the bad and doubtful debts the banks hold? Or is the banking system's ability to assess bad and doubtful debts so poor that they simply don't know?
Until we know what the bad debts are likely to be, I believe the banks won't lend. How to unpick that impasse is one for the debate up to and beyond the next election.
Going back to SME business lending "Vince Cable, Liberal Democrat Treasury spokesman, added: "It is becoming clear that the Bank's attempts to boost lending are only having a limited impact as banks continue to hoard money. If firms are unable to access credit it is likely we will see even more companies going under, deepening the recession and driving up unemployment."
In July net lending to non bank businesses fell by a staggering £8.4bn in July. The reason, bad debts and the bank's fear that much more bad debt is in the pipeline.
Vicky Redwood, UK economist at Capital Economics, noted Bank figures that showed a £365m, or 40pc, increase in write-offs on conventional corporate debt and £250m rise in write-offs on unsecured lending in the second quarter.
"While the biggest losses on 'toxic' assets may be behind us, recession-related losses on conventional loans are only just starting to come through," she said. "These losses are likely to erode much of the capital that banks have raised. Accordingly, it is understandable that banks are being cautious about lending more, even though their funding costs have fallen.
So what is going to happen in the next 2 quarters for companies looking for working capital support? I guess more of the same is on the way. Tighter business lending will inevitably lead to more pressure on businesses to cut costs, they'll avoid taking sales where they worry about getting paid, more redundancies will result and ultimately more business closures.
Would it not have been easier to let the banks go bust or agree to rescue them on condition that there was full and frank disclosure on the bad and doubtful debts the banks hold? Or is the banking system's ability to assess bad and doubtful debts so poor that they simply don't know?
Until we know what the bad debts are likely to be, I believe the banks won't lend. How to unpick that impasse is one for the debate up to and beyond the next election.
Going back to SME business lending "Vince Cable, Liberal Democrat Treasury spokesman, added: "It is becoming clear that the Bank's attempts to boost lending are only having a limited impact as banks continue to hoard money. If firms are unable to access credit it is likely we will see even more companies going under, deepening the recession and driving up unemployment."
Labels:
bank losses
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business failures
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Vince Cable
Friday 28 August 2009
Double dip recession is certainty, not just for UK
The shocking business investment numbers released yesterday give the lie to the "green shoots myth" for business.
Investment by businesses contracted on a quarter-on-quarter basis by its largest amount since 1985 and its looks like the annual decline this year is likely to be about 18 per cent — the biggest fall, outside wartime, for more than a century.
With that backdrop I cannot see a big recovery or even a small recovery in the economy. We have been saying for some time that companies, to survive the recession, have been cutting costs, reducing employment and now its clear they have also cut investment.
With 180,000 companies not paying PAYE and VAT on time (to survive cashflow crises) it is clear that SME businesses are having to "hunker down" for worse times ahead, by cutting investment, costs and employment.
Alongside consumer tax rises, next year we will see the new Government cut costs, public sector employment and investment too. Smart boards are already planning for that and cutting their cloth to fit. Coupled with falling investment as employment falls, less money will be spent by the consumer, so service sector and retailers in particular will see growth grind to a halt again after a recent rise.
So will this lead to the double dip recession or W shaped recession. Nothing is ever certain but that is what I am thinking as each month goes by.
So what of other countries? The rise in GDP in Japan is interesting. Much of this is probably restocking by companies, remember Japanese manufacturing collapsed last year. So good news for Japan ahead? NO.
This week the worlds largest car manufacturer, Toyota, decided to close a US plant and mothball two production lines (one in Britain), this is the first time in its history it has taken such actions. Does the board of Toyota see growth ahead?
Fujitsu announced 1,200 job losses in the UK . This after shorter working hours did not work in the UK. Falling revenues were to blame. No growth there then.
France and Germany also announced growth in Q2 of 2009. I also think this was driven by restocking and the bringing forward of car sales for example. Ambrose Evans-Pritchard of the Telegraph's recent article also points out that Eurpoean credit contracted recently (ie did not grow).
"We should not succumb to optimism that everything has been overcome. The whole world is in recession together and nobody alone can export their way out of the downturn. The recovery cannot last unless there is rise in global demand, and jobs are created, and there is no sign of that."
"The rebound in Germany and France is not sustainable. The state has stepped in to compensate for the private sector. As long as economic growth relies on the state, you cannot talk about durable recovery."
So lets wait and see, but it looks like a fall in GDP is ahead and it will be late 2010 before meaningful recovery in the major economies and then I think growth will be very sluggish.
Investment by businesses contracted on a quarter-on-quarter basis by its largest amount since 1985 and its looks like the annual decline this year is likely to be about 18 per cent — the biggest fall, outside wartime, for more than a century.
With that backdrop I cannot see a big recovery or even a small recovery in the economy. We have been saying for some time that companies, to survive the recession, have been cutting costs, reducing employment and now its clear they have also cut investment.
With 180,000 companies not paying PAYE and VAT on time (to survive cashflow crises) it is clear that SME businesses are having to "hunker down" for worse times ahead, by cutting investment, costs and employment.
Alongside consumer tax rises, next year we will see the new Government cut costs, public sector employment and investment too. Smart boards are already planning for that and cutting their cloth to fit. Coupled with falling investment as employment falls, less money will be spent by the consumer, so service sector and retailers in particular will see growth grind to a halt again after a recent rise.
So will this lead to the double dip recession or W shaped recession. Nothing is ever certain but that is what I am thinking as each month goes by.
So what of other countries? The rise in GDP in Japan is interesting. Much of this is probably restocking by companies, remember Japanese manufacturing collapsed last year. So good news for Japan ahead? NO.
This week the worlds largest car manufacturer, Toyota, decided to close a US plant and mothball two production lines (one in Britain), this is the first time in its history it has taken such actions. Does the board of Toyota see growth ahead?
Fujitsu announced 1,200 job losses in the UK . This after shorter working hours did not work in the UK. Falling revenues were to blame. No growth there then.
France and Germany also announced growth in Q2 of 2009. I also think this was driven by restocking and the bringing forward of car sales for example. Ambrose Evans-Pritchard of the Telegraph's recent article also points out that Eurpoean credit contracted recently (ie did not grow).
"We should not succumb to optimism that everything has been overcome. The whole world is in recession together and nobody alone can export their way out of the downturn. The recovery cannot last unless there is rise in global demand, and jobs are created, and there is no sign of that."
"The rebound in Germany and France is not sustainable. The state has stepped in to compensate for the private sector. As long as economic growth relies on the state, you cannot talk about durable recovery."
So lets wait and see, but it looks like a fall in GDP is ahead and it will be late 2010 before meaningful recovery in the major economies and then I think growth will be very sluggish.
Labels:
recession
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UK recession
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W shaped recession
Wednesday 26 August 2009
Company Rescue Newcastle Open for Business - NEW WEBSITE
KSA Group has offices in Gateshead and Northumberland as well as our London and Birmingham offices.
We know many of our friends and accountancy contacts want a dedicated web site for Newcastle, Sunderland, Gateshead, Middlesbrough and all North East based business and their advisors.
We are delighted to launch http://www.companyrescuenewcastle.co.uk/ for rapid advice for all struggling North East companies.
With simple to follow guides to company voluntary arrangements, administration and pre-pack administration, and creditors voluntary liquidation its the first place to start when looking for help.
Our new site also features a Flowchart and guides section. All guides are FREE to download.
If you are an advisor to a strugggling company, please contact Keith Steven on 07974 086779 or Eric Walls on 0191 4823343.
We know many of our friends and accountancy contacts want a dedicated web site for Newcastle, Sunderland, Gateshead, Middlesbrough and all North East based business and their advisors.
We are delighted to launch http://www.companyrescuenewcastle.co.uk/ for rapid advice for all struggling North East companies.
With simple to follow guides to company voluntary arrangements, administration and pre-pack administration, and creditors voluntary liquidation its the first place to start when looking for help.
Our new site also features a Flowchart and guides section. All guides are FREE to download.
If you are an advisor to a strugggling company, please contact Keith Steven on 07974 086779 or Eric Walls on 0191 4823343.
New Liquidate My Company Web Site Launches Today
After a revamp and a tidy up we have relaunched our dedicated web site for those directors (or advisors) looking for information on closing their company down.
Written in Plain English this site has been completely revised and is now easier to use.
Please visit http://www.liquidatemycompany.com/default.aspx for further information.
Visit now to learn all about wrongful trading, creditors voluntary liquidation, compulsory liquidation, liquidation flowchart, London Liquidation.
If you would like to link to this or any of our sites, please contact Keith Steven on 07974 086779 or keiths@ksagroup.co.uk
Written in Plain English this site has been completely revised and is now easier to use.
Please visit http://www.liquidatemycompany.com/default.aspx for further information.
Visit now to learn all about wrongful trading, creditors voluntary liquidation, compulsory liquidation, liquidation flowchart, London Liquidation.
If you would like to link to this or any of our sites, please contact Keith Steven on 07974 086779 or keiths@ksagroup.co.uk
Tuesday 25 August 2009
What can we do to protect contracts if we propose a CVA?
“We want a CVA but we are worried that our intellectual property would be put at risk, do you have a solution"? Of course we do!
Company Voluntary arrangement with hive down!
We are pragmatic experts who will always try to help you find solutions. By using a CompanyRescue CVA we can restructure viable but distressed companies. Sometimes that requires solving complex problems that can mean a "plain-vanilla" CVA is not workable. So we have used the following methods to address such complex scenarios.
As ever this is only a general guide, we cannot cover every scenario, so if you have a question or problem talk to us soon.
What is a Hive Down?
An asset, or the whole business can be hived down to a newly formed subsidiary of "Topco". Let's call this "Bottomco". It has a new clean balance sheet, no existing liabilities, but of course, no credit rating.
The board of Topco resolves to sell some or all of the assets to its subsidiary Bottomco and the consideration for this transfer is the shares in Bottomco, or cash payment can be made. Perhaps Bottomco could raise new funds to achieve this. The providers of such monies should consider taking appropriate security and or the bank debt in Topco can be "novated" down to Bottomco.
Topco is now an insolvent company, with modest or zero assets other than the shares held in bottomco which are in effect not worth anything much.
Topco can then enter a company voluntary arrangement to repay its creditors (generally not including it's secured creditors) say 30p in £1 over 5 years, or 25p in £1 in 3 months. Bottomco may then pay this to Topco in consideration for the release of the shares.
The supervisor of the CVA can take a charge over the company and its assets (shares in Bottomco) until the CVA contributions are paid over.
After the CVA ends Topco could be wound up or left as holding company for example. The people involved may buy the shares from the liquidator after valuation.
This process avoids what is known as "transaction at an undervalue" which is a breach of s238 Insolvency Act 1986. It is relatively simple in concept but legal advice is essential to avoid personal liability.
What is a Hive Across?
An asset, or the whole business can be hived across to a third party company in consideration for money or shares. This is more complex than a hive down and requires careful planning and legal advice to avoid "transactions at an undervalue" which is a breach of s238 Insolvency Act 1986. Legal advice is essential along with creative advice from CVA experts.
KSA works with one of the UK's top insolvency lawyers to ensure that a CVA with a Hive Down, or a CVA with a Hive Across mechanism are well conceived and designed, properly structured, and powerfully executed.
If this sounds of interest call Keith Steven on 0800 9700539 or 07974 086779 now.
Company Voluntary arrangement with hive down!
We are pragmatic experts who will always try to help you find solutions. By using a CompanyRescue CVA we can restructure viable but distressed companies. Sometimes that requires solving complex problems that can mean a "plain-vanilla" CVA is not workable. So we have used the following methods to address such complex scenarios.
As ever this is only a general guide, we cannot cover every scenario, so if you have a question or problem talk to us soon.
What is a Hive Down?
An asset, or the whole business can be hived down to a newly formed subsidiary of "Topco". Let's call this "Bottomco". It has a new clean balance sheet, no existing liabilities, but of course, no credit rating.
The board of Topco resolves to sell some or all of the assets to its subsidiary Bottomco and the consideration for this transfer is the shares in Bottomco, or cash payment can be made. Perhaps Bottomco could raise new funds to achieve this. The providers of such monies should consider taking appropriate security and or the bank debt in Topco can be "novated" down to Bottomco.
Topco is now an insolvent company, with modest or zero assets other than the shares held in bottomco which are in effect not worth anything much.
Topco can then enter a company voluntary arrangement to repay its creditors (generally not including it's secured creditors) say 30p in £1 over 5 years, or 25p in £1 in 3 months. Bottomco may then pay this to Topco in consideration for the release of the shares.
The supervisor of the CVA can take a charge over the company and its assets (shares in Bottomco) until the CVA contributions are paid over.
After the CVA ends Topco could be wound up or left as holding company for example. The people involved may buy the shares from the liquidator after valuation.
This process avoids what is known as "transaction at an undervalue" which is a breach of s238 Insolvency Act 1986. It is relatively simple in concept but legal advice is essential to avoid personal liability.
What is a Hive Across?
An asset, or the whole business can be hived across to a third party company in consideration for money or shares. This is more complex than a hive down and requires careful planning and legal advice to avoid "transactions at an undervalue" which is a breach of s238 Insolvency Act 1986. Legal advice is essential along with creative advice from CVA experts.
KSA works with one of the UK's top insolvency lawyers to ensure that a CVA with a Hive Down, or a CVA with a Hive Across mechanism are well conceived and designed, properly structured, and powerfully executed.
If this sounds of interest call Keith Steven on 0800 9700539 or 07974 086779 now.
Labels:
CVA with Hive Down
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Hive Down
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Keith Steven
Landlords back Focus DIY CVA
Very interesting and innovative CVA accepted by landlords. See good article from British Property Federation here....
http://www.bpf.org.uk/newsroom/pressreleases/document/23742/landlords-back-focus-cva-to-save-5000-jobs
See Daily Telegraph Coverage here...
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6083493/Focus-DIYs-landlords-back-CVA.html
A company voluntary arrangement is a powerful restructuring tool for retailers, manufacturers and service companies with cashflow problems.
See here for a case study of a CVA that KSA Group led last year. http://www.companyrescue.co.uk/component/content/article/7-case-studies/151-cva-case-study-logistics-and-distribution-company
http://www.bpf.org.uk/newsroom/pressreleases/document/23742/landlords-back-focus-cva-to-save-5000-jobs
See Daily Telegraph Coverage here...
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6083493/Focus-DIYs-landlords-back-CVA.html
A company voluntary arrangement is a powerful restructuring tool for retailers, manufacturers and service companies with cashflow problems.
See here for a case study of a CVA that KSA Group led last year. http://www.companyrescue.co.uk/component/content/article/7-case-studies/151-cva-case-study-logistics-and-distribution-company
Labels:
Focus CVA Approved
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focus CVA proposals
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Focus DIY CVA
Monday 24 August 2009
Focus DIY - The Times writes good article on CVA proposals
Focus DIY CVA creditors meeting is held today (24th August). In the the Times page 39, Marcus Leroux and Rebecca O'Connor have written a good article about the CVA, the background with regards to landlords and creditors and the voting procedure.
This CVA (click for guide) is proposing that the company exits 38 stores, that are closed. The other 180 landlords will be paid full rent but will have to accept monthly payments in arrears. Given that landlords represent 90% of the voting creditors, it is likely that the 38 landlords who are seeing their leases determined, will not be able to vote down the 180 others whose store leases continue, albeit with variations.
The Focus CVA will see leases for empty stores terminated with two payments equivalent to six months’ rent. The DIY chain has 180 stores still trading with the 38 closed outlets costing £12 million a year in rent. While the payout is less than the lease values, it’s more than they would get if the firm went under.
The retailer has also agreed to pay empty NNDR rates on the closed stores, which would provide substantial cash savings for the landlords while they find alternative tenants.
The firm’s secured lenders, HBOS and GMAC, will grant a two year extension to the company’s £50 million revolving credit facility, which is due to expire in December.
This will be another step forward in the pragmatic use of CVA's to restructure debt and leases. The most important feedback that I have seen is that the advisors and the company have both driven this CVA by talking to key creditors about their proposals and gaining a consensual majority approach. Common-sense applies in other words.
This is a key part of our approach to ALL CVA's that we advise on. Talk to the key stakeholders, creditors and build on our initial strategy around those conversations
This CVA (click for guide) is proposing that the company exits 38 stores, that are closed. The other 180 landlords will be paid full rent but will have to accept monthly payments in arrears. Given that landlords represent 90% of the voting creditors, it is likely that the 38 landlords who are seeing their leases determined, will not be able to vote down the 180 others whose store leases continue, albeit with variations.
The Focus CVA will see leases for empty stores terminated with two payments equivalent to six months’ rent. The DIY chain has 180 stores still trading with the 38 closed outlets costing £12 million a year in rent. While the payout is less than the lease values, it’s more than they would get if the firm went under.
The retailer has also agreed to pay empty NNDR rates on the closed stores, which would provide substantial cash savings for the landlords while they find alternative tenants.
The firm’s secured lenders, HBOS and GMAC, will grant a two year extension to the company’s £50 million revolving credit facility, which is due to expire in December.
This will be another step forward in the pragmatic use of CVA's to restructure debt and leases. The most important feedback that I have seen is that the advisors and the company have both driven this CVA by talking to key creditors about their proposals and gaining a consensual majority approach. Common-sense applies in other words.
This is a key part of our approach to ALL CVA's that we advise on. Talk to the key stakeholders, creditors and build on our initial strategy around those conversations
Labels:
CVA
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focus CVA proposals
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Focus DIY CVA
Friday 21 August 2009
The recession is nothing compared to a CVA! Good article in "Real Business"
Interesting if factually incorrect article !
It is called a company voluntary arrangement, not "creditors voluntary agreement". It is NOT approved by court, it is approved by creditors.
I admire Richard and his team for sticking it out and getting through the company voluntary arrangement early.
It seems he had little support from the financial sector, them blamimg the company for being in CVA is pretty rich when much of the financial sector was in the throes of boom and a spectacular bust.
I am supportive of the HMG's plans to increase the number of CVA's by providing the ability for "super secured lending" into CVA companies. Hopefully, the current consultation period will lead to this being introduced, (parliamentary time permitting).
This will allow new lending to be put ahead of the bank and other debts. Thereby helping the new lender to secure its lending.
There are tremendous opportunities in the UK for small banks and finance houses to provide financial products to people like Richard. CVA's are the best insolvency tool in the world in my view.
What it needs is for HMG, the insolvency profession, banks and professional advisors to recognise that a company proposing a CVA is determined to get money back to its creditors. Morally and financially they MUST support the hard working directors who do this (and don't simply run away from the debt). When pre-pack administrations, liquidations and receiverships are rising fast, I say hats off to Richard and his baord of directors who (like many of our clients) are driven to pay back creditors.
It is called a company voluntary arrangement, not "creditors voluntary agreement". It is NOT approved by court, it is approved by creditors.
I admire Richard and his team for sticking it out and getting through the company voluntary arrangement early.
It seems he had little support from the financial sector, them blamimg the company for being in CVA is pretty rich when much of the financial sector was in the throes of boom and a spectacular bust.
I am supportive of the HMG's plans to increase the number of CVA's by providing the ability for "super secured lending" into CVA companies. Hopefully, the current consultation period will lead to this being introduced, (parliamentary time permitting).
This will allow new lending to be put ahead of the bank and other debts. Thereby helping the new lender to secure its lending.
There are tremendous opportunities in the UK for small banks and finance houses to provide financial products to people like Richard. CVA's are the best insolvency tool in the world in my view.
What it needs is for HMG, the insolvency profession, banks and professional advisors to recognise that a company proposing a CVA is determined to get money back to its creditors. Morally and financially they MUST support the hard working directors who do this (and don't simply run away from the debt). When pre-pack administrations, liquidations and receiverships are rising fast, I say hats off to Richard and his baord of directors who (like many of our clients) are driven to pay back creditors.
Wednesday 19 August 2009
End to the Credit Crunch?
My last post talked about the Bank of England stating that £50bn extra was still required to bail out the economy. Well it seems that the Governor thought it needed more than that! It seems he voted for £75bn extra (total £200bn) and was defeated by the majority going for a total of £175bn.
What does this tell us about the credit problems out there? That there are great strides of progress being made, or that the markets are still locked up?
The news today that Bundesbank is preparing for a second credit crunch in Germany
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6050822/Germany-braces-for-second-wave-of-credit-crunch.html
is even more worrying.
What does this tell us about the credit problems out there? That there are great strides of progress being made, or that the markets are still locked up?
The news today that Bundesbank is preparing for a second credit crunch in Germany
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6050822/Germany-braces-for-second-wave-of-credit-crunch.html
is even more worrying.
Friday 14 August 2009
Bank thinks economy has not yet bottomed out. £50 billion more needed!
Those green shoots are springing up in the eyes of estate agents and the property world. Prices are rising they say, the recovery is well under way.
In the real world, the Bank of England seems to thinks otherwise. Interest rates have been kept to 0.5% and a further £50bn needs to be pumped into the economy through printing money, sorry "quantitative easing".
In a statement, they said that the UK recession "appears to have been deeper than previously thought" but the pace of contraction has moderated and business surveys suggest that the trough in output is close at hand."
So the bank seems to think the recession is nearly near the bottom. But like the bank, I think real growth is some way off yet.
BUT if you are an economist for Goldman Sachs you have already decided the recession has ended and growth under way !
See the comments below from the Evening Standard last night http://www.thisislondon.co.uk/standard/article-23731871-details/'Britain's+worst+recession+in+living+memory+is+over'/article.do
Jim O'Neil chief economist at Goldman Sachs, said the country had pulled out of the financial crisis and the economy was already growing again.
As he spoke, the FTSE 100 hit a year-high as optimism spread through dealing rooms. By mid-afternoon it had fallen back slightly but was still up 30 points at 4,746.
Surely he doe not have a vested interest in driving markets up does he? Remember Goldman Sachs benefits from movements in markets!
In the real world, the Bank of England seems to thinks otherwise. Interest rates have been kept to 0.5% and a further £50bn needs to be pumped into the economy through printing money, sorry "quantitative easing".
In a statement, they said that the UK recession "appears to have been deeper than previously thought" but the pace of contraction has moderated and business surveys suggest that the trough in output is close at hand."
So the bank seems to think the recession is nearly near the bottom. But like the bank, I think real growth is some way off yet.
BUT if you are an economist for Goldman Sachs you have already decided the recession has ended and growth under way !
See the comments below from the Evening Standard last night http://www.thisislondon.co.uk/standard/article-23731871-details/'Britain's+worst+recession+in+living+memory+is+over'/article.do
Jim O'Neil chief economist at Goldman Sachs, said the country had pulled out of the financial crisis and the economy was already growing again.
As he spoke, the FTSE 100 hit a year-high as optimism spread through dealing rooms. By mid-afternoon it had fallen back slightly but was still up 30 points at 4,746.
Surely he doe not have a vested interest in driving markets up does he? Remember Goldman Sachs benefits from movements in markets!
Labels:
Bank of England
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interest rates
Tuesday 11 August 2009
New blog link... Businesses for Sale
I have dealt with Robert Moore at Business Sale Report for many years. You can read his blog here
http://www.business-sale.com/blog/
I have added his blog to my favourites list.
If you have a business for sale or are looking to acquire one, then this is a good service to use and a good place to start.
http://www.business-sale.com/blog/
I have added his blog to my favourites list.
If you have a business for sale or are looking to acquire one, then this is a good service to use and a good place to start.
Labels:
Business Sale Report
,
Sell your business
Cattles Invoice Finance Finds New Home
Good to hear that the good guys and gals of Cattles are now looking forward to a new home, with an announcement yesterday that Anacap Financial Partners has purchased the invoice discounting/ factoring company for £70m.
I had predicted that Cattles IF would find a new home and break away from the distressed parent Cattles plc which has had its shares suspended since April over some financial irregularities and the sacking of much of its executive.
According to a press release we received yesterday, from Cattles IF, its business as usual and the Times reports that the sale should be completed by September.
Having worked with them for many years, we wish the team at Cattles IF (soon to be renamed?) all the best in the future. They have a solid understanding of insolvency, turnaround and company voluntary arrangements (CVA's). We have a number of long running mutual clients and hope we can do many more deals in future.
I had predicted that Cattles IF would find a new home and break away from the distressed parent Cattles plc which has had its shares suspended since April over some financial irregularities and the sacking of much of its executive.
According to a press release we received yesterday, from Cattles IF, its business as usual and the Times reports that the sale should be completed by September.
Having worked with them for many years, we wish the team at Cattles IF (soon to be renamed?) all the best in the future. They have a solid understanding of insolvency, turnaround and company voluntary arrangements (CVA's). We have a number of long running mutual clients and hope we can do many more deals in future.
Monday 10 August 2009
Company Voluntary Arrangements for LLP's
Remember if a business trades as a Limited Liability Partnership and has serious cashflow problems, onerous leases and too many employees equating to serious risk of failure, then company voluntary arrangement is a powerful tool for restructure.
This is suitable for solicitors firms, accountancy firms, venture capital/ private equity investment firms and any viable business trading as a LLP.
Call Keith Steven now for further details: 07974 086779.
In the next 3 months we will be taking part in a seminar/conference to review the CVA process for LLP's and what can be learned from the experience we had earlier this year.
NB: if you are interested please send Keith Steven an email. keiths@ksagroup.co.uk
This is suitable for solicitors firms, accountancy firms, venture capital/ private equity investment firms and any viable business trading as a LLP.
Call Keith Steven now for further details: 07974 086779.
In the next 3 months we will be taking part in a seminar/conference to review the CVA process for LLP's and what can be learned from the experience we had earlier this year.
NB: if you are interested please send Keith Steven an email. keiths@ksagroup.co.uk
Labels:
CVA
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CVA for LLP
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CVA for Solicitors
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LLP
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LLP conference
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partnership insolvency
Ashes catastrophy!
There was I hoping to watch the ashes test match on Saturday and Sunday and what happens? Well a hammering for England is the only polite word to describe it.
So much of a cuffing was it, that I had to spend the day cutting hedges for her indoors on Saturday and I then went to work Sunday.
She of course was highly delighted and now has a neat and tidy hedge up our drive. It is 40m long and up to 4m high in places.
Today, I am struggling to walk with a stiff leg and sore back. Must be getting old! See a day in front of the telly would have done me no good at all, she says!
Now, it is all down to the deciding test match, hope we can find 6 batsmen before then? At least all our hedges are cut now and I may get to watch some of that decider.
So much of a cuffing was it, that I had to spend the day cutting hedges for her indoors on Saturday and I then went to work Sunday.
She of course was highly delighted and now has a neat and tidy hedge up our drive. It is 40m long and up to 4m high in places.
Today, I am struggling to walk with a stiff leg and sore back. Must be getting old! See a day in front of the telly would have done me no good at all, she says!
Now, it is all down to the deciding test match, hope we can find 6 batsmen before then? At least all our hedges are cut now and I may get to watch some of that decider.
Labels:
Cricket
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Test Match
Thursday 6 August 2009
Pressure on HMRC Time to Pay Deals?
After my blog noted that nearly 180,000 companies are spreading their tax and VAT payments using the HMRC time to pay scheme (TTP) an article has appeared today in the telegraph. Some insolvency practitioners and lawyers are questioning this scheme asking if its encourages insolvent companies to continue trading.
Well yes it does! Of course the terminal business should not continue to trade but those suffering from debtors not paying on time, slower sales are not BUST business. Remember the Government has actively encouraged a company rescue policy for many years and does not want to see unnecessary liquidations and closures. So the scheme is clearly trying to underpin that aim. Of course some companies will abuse with 2, 3 or even more TTP deals.
My own view is that "2 strikes and you're out", should apply. If the company cannot keep up with two deals, it should seek more radical solutions like CVA, liquidation or administration pre-pack.
Below is the Telegraph article, note the IP calling for a published register of "offenders"!
HMRC given green light to push ahead with tax help scheme
Lawyers have given the all-clear to HM Revenue & Customs (HMRC) to continue its "time to pay" tax scheme, amid complaints that the Government is in danger of encouraging companies to continue trading when they are insolvent.
Published: 4:45PM BST 03 Aug 2009
The scheme aimed at helping to ease money pressures on businesses during the recession allows companies to delay PAYE and VAT payments. So far HMRC has approved 177,000 requests involving more than £3bn in taxes. The total includes 23,000 cases where HMRC has agreed a second reprieve for £320m in tax payments.
HMRC says more than 90pc of what it expected to receive has been paid. Around 60pc of the arrangements cover delay periods of up to three months.
Insolvency practitioners have been questioning whether the scheme is putting other businesses at risk.
Andy Wood, a partner in Sheffield-based The P&A Partnership, while welcoming the support for business, says it is potentially allowing thousands of technically insolvent businesses to continue trading. He wants HMRC to publish a register of all businesses benefiting from the scheme to allow suppliers to decide whether they should consider trading.
HMRC acknowledges that it has "limited discretion" in operating the scheme but said that after testing the legal framework it is satisfied that the programme is being "appropriately managed".
An HMRC spokesman said: "HMRC is always ready to enter into realistic arrangements to give a business time to pay the tax it owes. But there will be instances when a business is no longer viable and in those cases HMRC has a duty to take the appropriate action to recover as much of the debt owing to it as it can. These actions are always a last resort."
So will the HMRC continue its largess or will it tighten up and go for my two strikes and you're out approach?
Well yes it does! Of course the terminal business should not continue to trade but those suffering from debtors not paying on time, slower sales are not BUST business. Remember the Government has actively encouraged a company rescue policy for many years and does not want to see unnecessary liquidations and closures. So the scheme is clearly trying to underpin that aim. Of course some companies will abuse with 2, 3 or even more TTP deals.
My own view is that "2 strikes and you're out", should apply. If the company cannot keep up with two deals, it should seek more radical solutions like CVA, liquidation or administration pre-pack.
Below is the Telegraph article, note the IP calling for a published register of "offenders"!
HMRC given green light to push ahead with tax help scheme
Lawyers have given the all-clear to HM Revenue & Customs (HMRC) to continue its "time to pay" tax scheme, amid complaints that the Government is in danger of encouraging companies to continue trading when they are insolvent.
Published: 4:45PM BST 03 Aug 2009
The scheme aimed at helping to ease money pressures on businesses during the recession allows companies to delay PAYE and VAT payments. So far HMRC has approved 177,000 requests involving more than £3bn in taxes. The total includes 23,000 cases where HMRC has agreed a second reprieve for £320m in tax payments.
HMRC says more than 90pc of what it expected to receive has been paid. Around 60pc of the arrangements cover delay periods of up to three months.
Insolvency practitioners have been questioning whether the scheme is putting other businesses at risk.
Andy Wood, a partner in Sheffield-based The P&A Partnership, while welcoming the support for business, says it is potentially allowing thousands of technically insolvent businesses to continue trading. He wants HMRC to publish a register of all businesses benefiting from the scheme to allow suppliers to decide whether they should consider trading.
HMRC acknowledges that it has "limited discretion" in operating the scheme but said that after testing the legal framework it is satisfied that the programme is being "appropriately managed".
An HMRC spokesman said: "HMRC is always ready to enter into realistic arrangements to give a business time to pay the tax it owes. But there will be instances when a business is no longer viable and in those cases HMRC has a duty to take the appropriate action to recover as much of the debt owing to it as it can. These actions are always a last resort."
So will the HMRC continue its largess or will it tighten up and go for my two strikes and you're out approach?
Labels:
Administration
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CVA
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daily telegraph
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HMRC
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Liquidation
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time to pay deal
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time to pay programme
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TTP
Wednesday 5 August 2009
Focus DIY CVA - copy of proposals
FOCUS DIY CVA proposal: click here for a copy of the Focus DIY CVA proposals. Be prepared for a long read! A good example of using CVA to exit property leases. If it works for a national plc it can work for you, talk to Keith Steven our lease /CVA expert on 07974 086779.
Note:
See the foot of our detailed CVA guide page for the PDF copy of the proposals
Note:
See the foot of our detailed CVA guide page for the PDF copy of the proposals
Labels:
CVA proposals
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Focus DIY CVA
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PDF
Tuesday 4 August 2009
Focus DIY Proposes CVA
Another large retailer using CVA to kill off "dark leases" (or non performing stores to you and me).
Call Keith Steven to learn how this works, and how to do it better than the big stores! 07974 086779
...thanks to The Times of 5th August for the article below!
...thanks to Keith Steven for this CVA experts Guide! Click here
Focus DIY calls on landlords to support deal
Marcus Leroux, Retail Correspondent
Focus DIY will outline details today of a vital restructuring deal to secure its future and urge landlords to back its proposals in a vote later this month.
Focus wants to enter a company voluntary agreement (CVA) sic (its actually a company voluntary arrangement Marcus, read your law!) with landlords, under which it will dump cash-draining closed stores. Landlords of its closed stores would receive two lump-sum dividends in return for losing rent.
The company is likely to fall into administration unless it receives the backing of 75 per cent of its creditors for the CVA. If landlords — the creditors most likely to oppose the CVA — reject the deal and Focus falls into administration, the company would probably re-emerge under its present management through a pre-pack deal. That would leave the landlords of closed stores empty-handed, Bill Grimsey, Focus chief executive, said.
The 38 closed stores — 18 of which are sub-let — represent a cash outflow of £12 million a year, £8.6 million of which Focus could save through the CVA.
HBOS and GMAC, its lenders, will not renew its £50 million credit facility unless the burden of the “dark stores” is removed. Mr Grimsey said: “The CVA is absolutely essential. The key to this is revolving credit facilities, which run out at the end of this year.”
Mr Grimsey is optimistic that landlords will back the proposal at a vote on August 24. “It’s a rock and a hard place for them, but it’s also a rock and a hard place for us and our 5,500 staff. The pre-pack vehicle is over-used — it’s not a simple exercise but we have it as a contingency plan,” he said.
As part of the proposed CVA, Focus will ask the remaining landlords to accept monthly payments for the next 18 months, after which it will revert to a quarterly arrangement.
Focus is owned by Cerberus, the US private equity group that bought it for £1 in 2007. Focus said that it was trading ahead of expectations.
Back to Keith now... good use of the CVA tool. Or is it, what will the landlords think?
See this article from Macfarlanes LLP on the merits of the Stylo CVA, JJB Sports CVA and why one was accepted and the other not.
The impact of the JJB experience on pre-packs
Macfarlanes LLP
Simon Beale and Simon Hillson
United Kingdom
May 31 2009
In landlords' eyes, the February 2009 Stylo CVA proposal, considered in more detail here, was priced and structured too aggressively. The low percentage turnover rent (with no base rent) was particularly unattractive and was a significant factor in the rejection of the proposal.
JJB seem to have learnt from the Stylo experience. They structured their CVA proposal in a manner that was more attractive to landlords than the likely outcome in a pre-pack administration.
This CVA proposal may now set a precedent for the restructuring of multi-site businesses who find themselves in financial difficulty. The burst of pre-pack activity seen in the first three months of 2009 may now recede as other distressed tenants consider this seemingly workable alternative, particularly where the majority of unsecured creditors are landlords and where the business is in difficulty due to over-rented and under performing stores.
There do, however, remain some insolvency situations where a pre-pack may still be a more attractive option for tenants. If the main reason the tenant is in trouble is because it has taken on too much debt (ie there are no over-rented, under performing sites as such) a pre-pack may be the only realistic option for the tenant. Landlord creditors would not be left out of pocket because the buyer of the business will still want all of the premises for trade, but some of the more junior lenders, who may have debt that would not survive a pre-pack, might be.
How do CVAs work?
A CVA is a formal compromise between a company and some or all of its creditors. Often this will involve creditors receiving a fraction of the total owed to them. It may also involve a change in the timing of payments to creditors. In general terms, creditors are (or should be) incentivised to vote in favour of the proposal by ensuring that any reduction in their indebtedness, or other disbenefits they receive, are still likely to leave them in a better position than would be the case on another form of insolvency, such as administration or liquidation.
In a CVA, a business has a wide flexibility as to the proposals it chooses to make. Different arrangements can be reached with different creditor groups. Proposals can be made to keep some or all units open, possibly at a reduced rent and sometimes with more flexibility on break options or ability to assign. Existing management are also able to continue operating the business in accordance with the terms of the CVA, in contrast to an administration where control moves to the insolvency practitioner.
To take effect, a CVA proposal requires 75 per cent or more of creditors by value to vote in favour of it (the proposal will also fail if more than 50 per cent by value of those creditors who are 'unconnected' with the company vote against it).
In the case of landlords, the 'value' might have two components. The first component is the sum actually owing at the time of the vote. The second component is the future rent that is yet to fall due under the lease. The chairman of the meeting of creditors has a discretion as to the proper value to place on this, and chairmen have frequently valued future rent at the token sum of £1 only. If a tenant is up to date with rent payments and all other sums due under the lease at the date of the vote, the landlord may potentially only have limited voting power at the creditors' meeting.
If a CVA is approved by 75 per cent of creditors, it binds all creditors, including those voting against the proposal. In the property context, landlords cannot then pursue other remedies against the current tenant such as forfeiting a lease for unpaid rent, provided the tenant complies with the terms of the CVA. A landlord who considers that they have been unfairly prejudiced by the terms of a CVA does, however, still have the ability to challenge it within 28 days. (In a rare case, such as the 2007 Powerhouse dispute, landlords who voted against may persuade the court to overturn the CVA if they can demonstrate that it unfairly prejudices the minority who opposed it.)
Creditors, including landlords, will receive advance notice of a CVA proposal and therefore have an opportunity to consider it properly. This is one of the starkest contrasts with a pre-pack administration, where usually the first that most landlords know about the pre-pack is after it has already occurred.
Contrasting JJB with the Stylo experience
Background
The CVA proposals for Stylo, owner of the Barratts and Priceless shoe store chains, received a great deal of publicity. In February 2009, Stylo acknowledged it was in financial difficulties and proposed a novel CVA that would have involved various of its creditors, but especially its landlords, making significant sacrifices to help the chain avoid administration.
At a packed creditors' meeting on 12 February, the proposals were voted down. Many of the creditors voting against were landlords.
Why were so many landlords against the Stylo proposal?
The CVA would have involved rents on all Stylo's retail properties being reduced to 3 per cent of turnover for an initial period, rising later to 7 per cent. Putting this in context, a typical turnover rent for a chain retailer in normal economic circumstances is usually in the range of 10-12 per cent, with a base or minimum rent below which the turnover rent cannot ever fall.
We are aware of one landlord of premises whose current rent was in the region of £200,000 per annum, but for whom 3 per cent of turnover would mean the rent would fall dramatically to around £24,000 per annum.
On the other hand, the proposed CVA would have allowed landlords to market their premises and re-let to another occupier, in which case Stylo had the option either to pay an increased rent or to vacate.
Voting conduct of landlords may well have been determined by whether they perceived themselves to be a landlord of a 'good store' or a 'bad store' (landlords of 'good stores' being those who are likely to see their lease survive a pre-pack administration, and who therefore may be less willing to consider a CVA alternative involving a significant rent reduction).
Landlords of 'bad stores' in Stylo's case might have been more likely to vote in favour of the CVA proposal. They would expect to be left with nothing but an empty property if the CVA were rejected and Stylo went into administration.
On the other hand, landlords of better performing units might have considered it worthwhile making a stand against the proposals, not wanting an unappealing precedent (as they might see it) to be set for future CVAs. From their perspective, the Stylo CVA would:
• dump most of Stylo's existing liabilities; cancel existing rent arrears;
• reduce the rents to potentially very small sums;
• keep the business trading in the hands of the existing owners and managers (who landlords may feel were responsible for getting Stylo into its predicament in the first place); and
• not provide any guarantee that a specific number of jobs would actually be saved.
There were reported to be approximately 200 people at the Stylo creditors' meeting, many of them from some of the big name landlords. The Times of 14 February quoted a 'City source' who said 'the attitude of [one landlord] was incredibly fractious. They were really agitating against the deal. The tone of the meeting was set when one of the advisors [to Stylo] pointed out that this agreement would protect the employment rights of 5,450 people – and one of the landlords said "yes, but we don't care about that do we?"'
The Stylo CVA proposal was rejected, and the company promptly went into administration. One of the shareholders of the original company bought back a large chunk of the business from the administrators, saving about half the jobs in Barratts and Priceless shoes. Some 220 stores were shut, with 160 stores and 165 concessions remaining open for business.
JJB – a different type of CVA
The majority property industry perception is that the JJB CVA proposal offered a substantially better deal for landlords:-
For landlords of the 250 'good stores' that are still trading it provided for:
• full payment of the March 2009 quarter day's rent; and
• full payment of all rents going forward, but with rent being paid monthly rather than quarterly for the next twelve months. (In the current economic climate landlords appear to be relatively willing to accommodate tenant requests to switch from quarterly to monthly rent payments, so this may not have been seen as a particular concession for landlords of 'good stores'.)
For landlords of the 140 'bad stores' that had already shut, the proposal involved:
• no more rent being paid;
• a £10m ring-fenced fund being set aside to give landlords some compensation, typically about six months' rent;
• landlords being able to take premises back as soon as they wish; and
• JJB continuing to pay business rates on closed/empty stores until the lease ends.
Non-property creditors were generally to be paid in full. Indeed, the only classes of creditors who were compromised by the JJB CVA proposals were landlords of the 'bad stores', and certain contingent creditors such as former tenants who may still be liable for rents not paid by JJB.
Are the improved terms being offered because JJB are nicer than Stylo? Have JJB observed the lessons of the Stylo experience? Do JJB simply have more money left in the pot (as a result of their bank re-financing, which was conditional on the CVA being approved) to allow for a more generous offer to be made to landlords? On the other hand, would some of the bigger landlords say that the improved JJB terms simply show that the landlords made their point successfully in the Stylo case? You are invited to take your pick from some or all of these possibilities.
Recovery from former tenants and other third parties
Remember that in general terms, a landlord who is restricted from claiming against a tenant that is the subject of a CVA arrangement can usually still recover unpaid rent from other sources including (i) rent deposits, (ii) original tenants and previous assignees who have given direct covenants to the landlord (for leases granted on or before 31 December 1995), (iii) previous tenants who remain liable under authorised guarantee agreements (for leases granted after 31 December 1995), (iv) guarantors of an existing tenant and/or (v) sub-tenants.
Landlords also need to remember, though, that if they bring a lease to an end by forfeiture or surrender, this may prevent them from recovering any future rent from these sources.
From a landlord perspective, another attraction of a CVA over an administration is that with a CVA and a 'good store' there is no related lease assignment to the purchaser of the business: the current tenant remains the tenant, and any former tenants who were liable under authorised guarantee agreements (for leases granted after 31 December 1995) will continue to be liable.
Now
Keith Steven - thanks for the great article Macfarlanes
Over 98% of KSA's CVA's are accepted, so who will you call 0800 9700539.
Contact Keith Steven 07974 086779. keiths@ksagroup.co.uk
Call Keith Steven to learn how this works, and how to do it better than the big stores! 07974 086779
...thanks to The Times of 5th August for the article below!
...thanks to Keith Steven for this CVA experts Guide! Click here
Focus DIY calls on landlords to support deal
Marcus Leroux, Retail Correspondent
Focus DIY will outline details today of a vital restructuring deal to secure its future and urge landlords to back its proposals in a vote later this month.
Focus wants to enter a company voluntary agreement (CVA) sic (its actually a company voluntary arrangement Marcus, read your law!) with landlords, under which it will dump cash-draining closed stores. Landlords of its closed stores would receive two lump-sum dividends in return for losing rent.
The company is likely to fall into administration unless it receives the backing of 75 per cent of its creditors for the CVA. If landlords — the creditors most likely to oppose the CVA — reject the deal and Focus falls into administration, the company would probably re-emerge under its present management through a pre-pack deal. That would leave the landlords of closed stores empty-handed, Bill Grimsey, Focus chief executive, said.
The 38 closed stores — 18 of which are sub-let — represent a cash outflow of £12 million a year, £8.6 million of which Focus could save through the CVA.
HBOS and GMAC, its lenders, will not renew its £50 million credit facility unless the burden of the “dark stores” is removed. Mr Grimsey said: “The CVA is absolutely essential. The key to this is revolving credit facilities, which run out at the end of this year.”
Mr Grimsey is optimistic that landlords will back the proposal at a vote on August 24. “It’s a rock and a hard place for them, but it’s also a rock and a hard place for us and our 5,500 staff. The pre-pack vehicle is over-used — it’s not a simple exercise but we have it as a contingency plan,” he said.
As part of the proposed CVA, Focus will ask the remaining landlords to accept monthly payments for the next 18 months, after which it will revert to a quarterly arrangement.
Focus is owned by Cerberus, the US private equity group that bought it for £1 in 2007. Focus said that it was trading ahead of expectations.
Back to Keith now... good use of the CVA tool. Or is it, what will the landlords think?
See this article from Macfarlanes LLP on the merits of the Stylo CVA, JJB Sports CVA and why one was accepted and the other not.
The impact of the JJB experience on pre-packs
Macfarlanes LLP
Simon Beale and Simon Hillson
United Kingdom
May 31 2009
In landlords' eyes, the February 2009 Stylo CVA proposal, considered in more detail here, was priced and structured too aggressively. The low percentage turnover rent (with no base rent) was particularly unattractive and was a significant factor in the rejection of the proposal.
JJB seem to have learnt from the Stylo experience. They structured their CVA proposal in a manner that was more attractive to landlords than the likely outcome in a pre-pack administration.
This CVA proposal may now set a precedent for the restructuring of multi-site businesses who find themselves in financial difficulty. The burst of pre-pack activity seen in the first three months of 2009 may now recede as other distressed tenants consider this seemingly workable alternative, particularly where the majority of unsecured creditors are landlords and where the business is in difficulty due to over-rented and under performing stores.
There do, however, remain some insolvency situations where a pre-pack may still be a more attractive option for tenants. If the main reason the tenant is in trouble is because it has taken on too much debt (ie there are no over-rented, under performing sites as such) a pre-pack may be the only realistic option for the tenant. Landlord creditors would not be left out of pocket because the buyer of the business will still want all of the premises for trade, but some of the more junior lenders, who may have debt that would not survive a pre-pack, might be.
How do CVAs work?
A CVA is a formal compromise between a company and some or all of its creditors. Often this will involve creditors receiving a fraction of the total owed to them. It may also involve a change in the timing of payments to creditors. In general terms, creditors are (or should be) incentivised to vote in favour of the proposal by ensuring that any reduction in their indebtedness, or other disbenefits they receive, are still likely to leave them in a better position than would be the case on another form of insolvency, such as administration or liquidation.
In a CVA, a business has a wide flexibility as to the proposals it chooses to make. Different arrangements can be reached with different creditor groups. Proposals can be made to keep some or all units open, possibly at a reduced rent and sometimes with more flexibility on break options or ability to assign. Existing management are also able to continue operating the business in accordance with the terms of the CVA, in contrast to an administration where control moves to the insolvency practitioner.
To take effect, a CVA proposal requires 75 per cent or more of creditors by value to vote in favour of it (the proposal will also fail if more than 50 per cent by value of those creditors who are 'unconnected' with the company vote against it).
In the case of landlords, the 'value' might have two components. The first component is the sum actually owing at the time of the vote. The second component is the future rent that is yet to fall due under the lease. The chairman of the meeting of creditors has a discretion as to the proper value to place on this, and chairmen have frequently valued future rent at the token sum of £1 only. If a tenant is up to date with rent payments and all other sums due under the lease at the date of the vote, the landlord may potentially only have limited voting power at the creditors' meeting.
If a CVA is approved by 75 per cent of creditors, it binds all creditors, including those voting against the proposal. In the property context, landlords cannot then pursue other remedies against the current tenant such as forfeiting a lease for unpaid rent, provided the tenant complies with the terms of the CVA. A landlord who considers that they have been unfairly prejudiced by the terms of a CVA does, however, still have the ability to challenge it within 28 days. (In a rare case, such as the 2007 Powerhouse dispute, landlords who voted against may persuade the court to overturn the CVA if they can demonstrate that it unfairly prejudices the minority who opposed it.)
Creditors, including landlords, will receive advance notice of a CVA proposal and therefore have an opportunity to consider it properly. This is one of the starkest contrasts with a pre-pack administration, where usually the first that most landlords know about the pre-pack is after it has already occurred.
Contrasting JJB with the Stylo experience
Background
The CVA proposals for Stylo, owner of the Barratts and Priceless shoe store chains, received a great deal of publicity. In February 2009, Stylo acknowledged it was in financial difficulties and proposed a novel CVA that would have involved various of its creditors, but especially its landlords, making significant sacrifices to help the chain avoid administration.
At a packed creditors' meeting on 12 February, the proposals were voted down. Many of the creditors voting against were landlords.
Why were so many landlords against the Stylo proposal?
The CVA would have involved rents on all Stylo's retail properties being reduced to 3 per cent of turnover for an initial period, rising later to 7 per cent. Putting this in context, a typical turnover rent for a chain retailer in normal economic circumstances is usually in the range of 10-12 per cent, with a base or minimum rent below which the turnover rent cannot ever fall.
We are aware of one landlord of premises whose current rent was in the region of £200,000 per annum, but for whom 3 per cent of turnover would mean the rent would fall dramatically to around £24,000 per annum.
On the other hand, the proposed CVA would have allowed landlords to market their premises and re-let to another occupier, in which case Stylo had the option either to pay an increased rent or to vacate.
Voting conduct of landlords may well have been determined by whether they perceived themselves to be a landlord of a 'good store' or a 'bad store' (landlords of 'good stores' being those who are likely to see their lease survive a pre-pack administration, and who therefore may be less willing to consider a CVA alternative involving a significant rent reduction).
Landlords of 'bad stores' in Stylo's case might have been more likely to vote in favour of the CVA proposal. They would expect to be left with nothing but an empty property if the CVA were rejected and Stylo went into administration.
On the other hand, landlords of better performing units might have considered it worthwhile making a stand against the proposals, not wanting an unappealing precedent (as they might see it) to be set for future CVAs. From their perspective, the Stylo CVA would:
• dump most of Stylo's existing liabilities; cancel existing rent arrears;
• reduce the rents to potentially very small sums;
• keep the business trading in the hands of the existing owners and managers (who landlords may feel were responsible for getting Stylo into its predicament in the first place); and
• not provide any guarantee that a specific number of jobs would actually be saved.
There were reported to be approximately 200 people at the Stylo creditors' meeting, many of them from some of the big name landlords. The Times of 14 February quoted a 'City source' who said 'the attitude of [one landlord] was incredibly fractious. They were really agitating against the deal. The tone of the meeting was set when one of the advisors [to Stylo] pointed out that this agreement would protect the employment rights of 5,450 people – and one of the landlords said "yes, but we don't care about that do we?"'
The Stylo CVA proposal was rejected, and the company promptly went into administration. One of the shareholders of the original company bought back a large chunk of the business from the administrators, saving about half the jobs in Barratts and Priceless shoes. Some 220 stores were shut, with 160 stores and 165 concessions remaining open for business.
JJB – a different type of CVA
The majority property industry perception is that the JJB CVA proposal offered a substantially better deal for landlords:-
For landlords of the 250 'good stores' that are still trading it provided for:
• full payment of the March 2009 quarter day's rent; and
• full payment of all rents going forward, but with rent being paid monthly rather than quarterly for the next twelve months. (In the current economic climate landlords appear to be relatively willing to accommodate tenant requests to switch from quarterly to monthly rent payments, so this may not have been seen as a particular concession for landlords of 'good stores'.)
For landlords of the 140 'bad stores' that had already shut, the proposal involved:
• no more rent being paid;
• a £10m ring-fenced fund being set aside to give landlords some compensation, typically about six months' rent;
• landlords being able to take premises back as soon as they wish; and
• JJB continuing to pay business rates on closed/empty stores until the lease ends.
Non-property creditors were generally to be paid in full. Indeed, the only classes of creditors who were compromised by the JJB CVA proposals were landlords of the 'bad stores', and certain contingent creditors such as former tenants who may still be liable for rents not paid by JJB.
Are the improved terms being offered because JJB are nicer than Stylo? Have JJB observed the lessons of the Stylo experience? Do JJB simply have more money left in the pot (as a result of their bank re-financing, which was conditional on the CVA being approved) to allow for a more generous offer to be made to landlords? On the other hand, would some of the bigger landlords say that the improved JJB terms simply show that the landlords made their point successfully in the Stylo case? You are invited to take your pick from some or all of these possibilities.
Recovery from former tenants and other third parties
Remember that in general terms, a landlord who is restricted from claiming against a tenant that is the subject of a CVA arrangement can usually still recover unpaid rent from other sources including (i) rent deposits, (ii) original tenants and previous assignees who have given direct covenants to the landlord (for leases granted on or before 31 December 1995), (iii) previous tenants who remain liable under authorised guarantee agreements (for leases granted after 31 December 1995), (iv) guarantors of an existing tenant and/or (v) sub-tenants.
Landlords also need to remember, though, that if they bring a lease to an end by forfeiture or surrender, this may prevent them from recovering any future rent from these sources.
From a landlord perspective, another attraction of a CVA over an administration is that with a CVA and a 'good store' there is no related lease assignment to the purchaser of the business: the current tenant remains the tenant, and any former tenants who were liable under authorised guarantee agreements (for leases granted after 31 December 1995) will continue to be liable.
Now
Keith Steven - thanks for the great article Macfarlanes
Over 98% of KSA's CVA's are accepted, so who will you call 0800 9700539.
Contact Keith Steven 07974 086779. keiths@ksagroup.co.uk
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Downside of Pre-pack for Cobra Beer Creditors
Cobra Beer pre-pack administrator's report published.
Creditors set to lose £71m reports The Mail on Sunday Business section.
It says that a report by administrators from PricewaterhouseCoopers into the Indian lager company founded by Lord Bilimoria found there were 340 unsecured creditors that are unlikely to get any of their money back.
Wells & Youngs, which brewed Cobra beer under licence, has losses of £1.9m.
The report found that Cobra, which never made a profit, was in desperate need of funds by February 2008 so the directors decided to sell up. By last January there had been just one offer, from Wells & Youngs, but this was rejected.
Then Cobra's creditors demanded that it pay its bills, leaving it vulnerable to a winding-up petition.
Brewer Molson Coors paid £12m for the company after it went into administration.
Lord Bilimoria, who once claimed Cobra could be worth £150m, is a director of the new company
So the classic complaint of pre-pack administration is that unsecured creditors get nothing is demonstrated in this case. I would be interested in the views of the administrator regarding the directors. This company, under the direction of Bilimoria, never made a profit as he vowed to go for growth not profits. Seems that this model was found out!
Creditors set to lose £71m reports The Mail on Sunday Business section.
It says that a report by administrators from PricewaterhouseCoopers into the Indian lager company founded by Lord Bilimoria found there were 340 unsecured creditors that are unlikely to get any of their money back.
Wells & Youngs, which brewed Cobra beer under licence, has losses of £1.9m.
The report found that Cobra, which never made a profit, was in desperate need of funds by February 2008 so the directors decided to sell up. By last January there had been just one offer, from Wells & Youngs, but this was rejected.
Then Cobra's creditors demanded that it pay its bills, leaving it vulnerable to a winding-up petition.
Brewer Molson Coors paid £12m for the company after it went into administration.
Lord Bilimoria, who once claimed Cobra could be worth £150m, is a director of the new company
So the classic complaint of pre-pack administration is that unsecured creditors get nothing is demonstrated in this case. I would be interested in the views of the administrator regarding the directors. This company, under the direction of Bilimoria, never made a profit as he vowed to go for growth not profits. Seems that this model was found out!
Sunday 2 August 2009
HMRC Time to Pay Deals
An amazing 180,000 companies are now using the HMRC time to pay programme according to HMRC and the Sunday Times. Some £3.2billion is now being paid over periods of 6-24 months.
Since February 2009 some 120,000 companies or 24,000 a month have joined the scheme. Some 1,100 deals are being handed out every business day!
This staggering number of insolvent companies (not being able to pay PAYE and or VAT on time is a test for insolvency) not paying their taxes on time is a huge shield for those SME's, but is also a false sense of security about the state of business in the recession. Had half of these entered some of form of insolvency or closed for business the outcry would have been huge. Of course this is the main aim of the scheme, keep the bad business news and lost jobs out of the headlines, there's an election coming!
In normal times the tax collectors would be pursuing these companies with vigour and using County Court Judgments, winding up petitions and bailiff action. Now, the government is positively championing this time to pay programme as a positive thing! How times change.
I also note the articles in the Sunday Times, on 2nd August, stated that thousands of companies owing £320m (or 10% of the total) are now on second or subsequent time to pay deals. In other words they are insolvent, they then failed to pay the first deal and have been give a second or further chance. How far to take this? Three or four deals? More? When does HMRC start taking legal action against defaulters?
Aside of the politics of avoiding lots of insolvencies, is this de facto bank lending? Given that the Lloyds TSB/ HBOS/RBS nationalised banks are struggling to lend is the bank of HMRC taking up the slack? Slightly cynical perhaps, but I meet many people who are amazed and annoyed that 180,000 companies are getting a government sponsored loan that, in effect, gives them an advantage over their competitors who are paying their taxes on time.
What other solutions are there?
========================
If companies are failing to meet these time to pay deals they should consider using a more radical restructuring tool like company voluntary arrangement. It leaves the directors in control of the business, avoids voluntary liquidation and administration and gives the ability to pay %age of the company's overall unsecured debts over up to 5 years.
If the company is not viable, then creditors voluntary liquidation or administration should be considered. Finally, when the HMRC programme comes to an end and normal rules apply, expect a lot of compulsory liquidations.
Since February 2009 some 120,000 companies or 24,000 a month have joined the scheme. Some 1,100 deals are being handed out every business day!
This staggering number of insolvent companies (not being able to pay PAYE and or VAT on time is a test for insolvency) not paying their taxes on time is a huge shield for those SME's, but is also a false sense of security about the state of business in the recession. Had half of these entered some of form of insolvency or closed for business the outcry would have been huge. Of course this is the main aim of the scheme, keep the bad business news and lost jobs out of the headlines, there's an election coming!
In normal times the tax collectors would be pursuing these companies with vigour and using County Court Judgments, winding up petitions and bailiff action. Now, the government is positively championing this time to pay programme as a positive thing! How times change.
I also note the articles in the Sunday Times, on 2nd August, stated that thousands of companies owing £320m (or 10% of the total) are now on second or subsequent time to pay deals. In other words they are insolvent, they then failed to pay the first deal and have been give a second or further chance. How far to take this? Three or four deals? More? When does HMRC start taking legal action against defaulters?
Aside of the politics of avoiding lots of insolvencies, is this de facto bank lending? Given that the Lloyds TSB/ HBOS/RBS nationalised banks are struggling to lend is the bank of HMRC taking up the slack? Slightly cynical perhaps, but I meet many people who are amazed and annoyed that 180,000 companies are getting a government sponsored loan that, in effect, gives them an advantage over their competitors who are paying their taxes on time.
What other solutions are there?
========================
If companies are failing to meet these time to pay deals they should consider using a more radical restructuring tool like company voluntary arrangement. It leaves the directors in control of the business, avoids voluntary liquidation and administration and gives the ability to pay %age of the company's overall unsecured debts over up to 5 years.
If the company is not viable, then creditors voluntary liquidation or administration should be considered. Finally, when the HMRC programme comes to an end and normal rules apply, expect a lot of compulsory liquidations.
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Thursday 30 July 2009
Exciting news for AIM / Plus Markets or PE backed companies looking for equity, debt and mezzanine finance.
Four Turnaround Funders looking to fund your distressed business !
KSA has close relationships with four high quality Turnaround Funds. They have an appetite for good businesses that are in a distressed situation. If you are a director of an AIM listed company, Plus Markets company, or private equity backed company then contact Keith Steven for a confidential chat.
To qualify for an initial appraisal and meeting with a KSA senior director you will need to have up to date management accounts, a business plan synopsis and a willingness to consider change and funding linked to a powerful company voluntary arrangement, pre-pack administration or informal turnaround plan.
Our long years of CVA and rescue experience are essentially the reason why these 4 funds have approached KSA. Our decision whether to involve one or more of these funds will be final and we will not introduce you to these funders unless WE believe that there is a viable proposal.
Call Keith Steven now on 07974 086779
KSA has close relationships with four high quality Turnaround Funds. They have an appetite for good businesses that are in a distressed situation. If you are a director of an AIM listed company, Plus Markets company, or private equity backed company then contact Keith Steven for a confidential chat.
To qualify for an initial appraisal and meeting with a KSA senior director you will need to have up to date management accounts, a business plan synopsis and a willingness to consider change and funding linked to a powerful company voluntary arrangement, pre-pack administration or informal turnaround plan.
Our long years of CVA and rescue experience are essentially the reason why these 4 funds have approached KSA. Our decision whether to involve one or more of these funds will be final and we will not introduce you to these funders unless WE believe that there is a viable proposal.
Call Keith Steven now on 07974 086779
Wednesday 29 July 2009
Free Experts Guide to Company Voluntary Arrangements
Just a reminder to Blog followers that you have exclusive access FREE TO DOWNLOAD!
Get our Complete Experts Guide to Company Voluntary Arrangements.
If you are looking at restructuring options for your company or that of a client, our 80 page guide to CVA's is the only guide you need to this excellent rescue tool.
FAQ's, flowcharts, guides, case studies, tips of the trade and case law: all in one PDF that's easy to use or email.
Simply click here for instant free, safe download
http://www.companyrescue.co.uk/company-rescue/options/documents/KSAExpertGuidetoCVAV1KS080929.pdf
Get our Complete Experts Guide to Company Voluntary Arrangements.
If you are looking at restructuring options for your company or that of a client, our 80 page guide to CVA's is the only guide you need to this excellent rescue tool.
FAQ's, flowcharts, guides, case studies, tips of the trade and case law: all in one PDF that's easy to use or email.
Simply click here for instant free, safe download
http://www.companyrescue.co.uk/company-rescue/options/documents/KSAExpertGuidetoCVAV1KS080929.pdf
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Swine Flu, big business threat? Common Sense required
Unfortunately one of our team has been diagnosed with Swine Flu this week
She went home last week not feeling well and has been quite poorly since. Her doctor has confirmed the SF diagnosis this week and she will need to stay off work for a few more days.
We all read about the bug, but it brought home to me what a risk it may be to businesses if not handled properly.
The guidelines provided here
http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_097137?IdcService=GET_FILE&dID=189550&Rendition=Web
are useful for the employer and employees to follows. Most of it is common sense of course but it is certainly worth reading. Business is hard enough in this recession without having a major threat from a virus! So some simple prevention techniques in the guide are worth implementing.
Lets hope the virus does not grow rapidly as forecast in the colder weather of autumn and winter. Will we all get a vaccine? Will it work? What are the side effects?
She went home last week not feeling well and has been quite poorly since. Her doctor has confirmed the SF diagnosis this week and she will need to stay off work for a few more days.
We all read about the bug, but it brought home to me what a risk it may be to businesses if not handled properly.
The guidelines provided here
http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_097137?IdcService=GET_FILE&dID=189550&Rendition=Web
are useful for the employer and employees to follows. Most of it is common sense of course but it is certainly worth reading. Business is hard enough in this recession without having a major threat from a virus! So some simple prevention techniques in the guide are worth implementing.
Lets hope the virus does not grow rapidly as forecast in the colder weather of autumn and winter. Will we all get a vaccine? Will it work? What are the side effects?
Labels:
Swine Flu
Monday 27 July 2009
Keith was too optimistic? Or too early to tell?
In my blog of 13th January 2009 I made the following prediction (amongst others)
"My first prediction is 1.5% drop in GDP in Q4 2008, this will take us firmly into recession when results are announced by ONS on 23rd January. We should expect a fall of 3.5% in GDP this year, 2009".
Many people said to me at that time "that's a bit steep Keith". Well the news on Friday 24th July was that the economy is probably on track for a larger fall than that. Many economists are now forecasting 4.5% or more fall in GDP in 2009.
Some are forecasting growth in Q3 and Q4, clearly they seem to be basing that on green shoots. The Treasury itself predicted that the economy would contract by between 3.25 per cent and 3.75 per cent in 2009, with signs of growth in the first half of 2010. They may still be right, but we doubt it and if I am right then borrowing will rise still further than the mind blowing sums already budgeted.
There will be some doubt of course about the GDP numbers in the minds of business when retail sales are rising, mortgage approvals are rising and commentators insist there is going to be a V shaped recession. Most boards are taking a more sanguine view and cutting costs to survive. It is surely better to see the order book rising and then take on people and costs than build it on rhetoric. To that end a trade off on employment seems to be taking place.
One of the most interesting numbers discussed recently is the circa 1m people who are now in part time work having been full time employees. Many companies like British Airways, accountancy firms, law firms and services companies seem to be trying to hold off redundancies by keeping people employed, albeit on lower income levels. Smart move or deferring the inevitable? Only time will tell.
So, now that we have the half time scores for 2009 (before revisions) I will revise my forecasts to over 4.5% GDP reduction in 2009.
What of 2010 which is now only 5 months away? With the certainty of the following I cannot see 2010 being a year of much growth either:
"My first prediction is 1.5% drop in GDP in Q4 2008, this will take us firmly into recession when results are announced by ONS on 23rd January. We should expect a fall of 3.5% in GDP this year, 2009".
Many people said to me at that time "that's a bit steep Keith". Well the news on Friday 24th July was that the economy is probably on track for a larger fall than that. Many economists are now forecasting 4.5% or more fall in GDP in 2009.
Some are forecasting growth in Q3 and Q4, clearly they seem to be basing that on green shoots. The Treasury itself predicted that the economy would contract by between 3.25 per cent and 3.75 per cent in 2009, with signs of growth in the first half of 2010. They may still be right, but we doubt it and if I am right then borrowing will rise still further than the mind blowing sums already budgeted.
There will be some doubt of course about the GDP numbers in the minds of business when retail sales are rising, mortgage approvals are rising and commentators insist there is going to be a V shaped recession. Most boards are taking a more sanguine view and cutting costs to survive. It is surely better to see the order book rising and then take on people and costs than build it on rhetoric. To that end a trade off on employment seems to be taking place.
One of the most interesting numbers discussed recently is the circa 1m people who are now in part time work having been full time employees. Many companies like British Airways, accountancy firms, law firms and services companies seem to be trying to hold off redundancies by keeping people employed, albeit on lower income levels. Smart move or deferring the inevitable? Only time will tell.
So, now that we have the half time scores for 2009 (before revisions) I will revise my forecasts to over 4.5% GDP reduction in 2009.
What of 2010 which is now only 5 months away? With the certainty of the following I cannot see 2010 being a year of much growth either:
- Tax increases from April 2010 (already in the pipeline)
- Increased unemployment by a further 500-750,000 people by end 2010
- Huge credit card defaults
- £300bn of UK distressed property debt which needs refinancing over next 24 months
- VAT to rise on 1st January 2010 to AT LEAST 17.5%
- Rise in Government's borrowing requirements
- Uncertainty that will be caused by a general election which must be held in the next 10 months
So no green shoots from me!
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Friday 24 July 2009
Encouraging Company Rescue
Well we have never needed any encouragement but this is actually a serious Blog!
The Insolvency Service has issued a consultation paper as per the link above with regards to beefing up of the legislative framework for Company Rescues and Company Voluntary Arrangements (CVA's) in particular.
The fact that Government wants to encourage more CVA's is very encouraging for CVA practitioners like KSA. We have often been a lonely champion of the CVA tool. Now many larger insolvency practitioners are looking again at CVA as a great rescue approach in appropriate circumstances. Pre-pack and "plain vanilla" administrations have their place, as does administration followed by CVA.
With the news From The Times July 21, 2009 - Pre-pack bankruptcy accountants 'mocking rules' that 35% of pre-pack administrations don't comply with the rules and guidelines (SIP 16)and that the Insolvency Service is taking aggressive action against dozens of insolvency practitioners, I strongly believe CVA is the best insolvency method available for viable businesses. It is also less risky for practitioners, whilst maximising creditors interests.
Perhaps the insolvency profession will have to work harder WITH MANAGEMENT, SECURED AND UNSECURED CREDITORS and new funders(?) to ensure CVA's are used to protect and preserve companies.
So, what does the Government want to consult about? In particular, the proposals consider:
􀂃 extending to medium and large-sized companies the option of a
moratorium against creditor action - currently only available to
small companies - so they too can benefit from a “breathing
space” in which they can seek to agree with their creditors a
means of securing a company rescue by means of a Company
Voluntary Arrangement;
􀂃 the introduction of a new court-sanctioned moratorium available
to all companies; and
􀂃 providing greater security to repayment of monies loaned post CVA or administration, to allow firms in difficulties to access the
funding they need to get back on track.
We will publish our response to this in due course, meantime I would welcome
any comments from our clients, past clients, advisors, colleagues and advisors.
See here for the PDF on Company Rescue published by the Insolvency Service and here for the report on SIP16 by Insolvency Service.
Any questions or views please Blog/email or call me - 07974 086779
The Insolvency Service has issued a consultation paper as per the link above with regards to beefing up of the legislative framework for Company Rescues and Company Voluntary Arrangements (CVA's) in particular.
The fact that Government wants to encourage more CVA's is very encouraging for CVA practitioners like KSA. We have often been a lonely champion of the CVA tool. Now many larger insolvency practitioners are looking again at CVA as a great rescue approach in appropriate circumstances. Pre-pack and "plain vanilla" administrations have their place, as does administration followed by CVA.
With the news From The Times July 21, 2009 - Pre-pack bankruptcy accountants 'mocking rules' that 35% of pre-pack administrations don't comply with the rules and guidelines (SIP 16)and that the Insolvency Service is taking aggressive action against dozens of insolvency practitioners, I strongly believe CVA is the best insolvency method available for viable businesses. It is also less risky for practitioners, whilst maximising creditors interests.
Perhaps the insolvency profession will have to work harder WITH MANAGEMENT, SECURED AND UNSECURED CREDITORS and new funders(?) to ensure CVA's are used to protect and preserve companies.
So, what does the Government want to consult about? In particular, the proposals consider:
􀂃 extending to medium and large-sized companies the option of a
moratorium against creditor action - currently only available to
small companies - so they too can benefit from a “breathing
space” in which they can seek to agree with their creditors a
means of securing a company rescue by means of a Company
Voluntary Arrangement;
􀂃 the introduction of a new court-sanctioned moratorium available
to all companies; and
􀂃 providing greater security to repayment of monies loaned post CVA or administration, to allow firms in difficulties to access the
funding they need to get back on track.
We will publish our response to this in due course, meantime I would welcome
any comments from our clients, past clients, advisors, colleagues and advisors.
See here for the PDF on Company Rescue published by the Insolvency Service and here for the report on SIP16 by Insolvency Service.
Any questions or views please Blog/email or call me - 07974 086779
Thursday 2 July 2009
75% of all private equity backed exits end in "receivership"
Nottingham University Business School's Centre for Management Buy Out research also reports that 86% of all exits where the MBO value was under £10m are into administration or receivership.
This is frustrating when some could possibly have been restructured using company voluntary arrangements (CVA)?
This report has been widely covered today in the financial press, with many comments made on over gearing and too much leverage.
A cogently structured CVA could lead to protection of senior debt holders exposure and or a haircut, a dividend recovery for some of the junior debt holders and of course the trade and tax creditors. CVA is as powerful as administration in most situations and is MUCH LESS damaging to the underlying business.
See our case study for Futuremedia plc as a good example of innovative CVA restructuring.
This is frustrating when some could possibly have been restructured using company voluntary arrangements (CVA)?
This report has been widely covered today in the financial press, with many comments made on over gearing and too much leverage.
A cogently structured CVA could lead to protection of senior debt holders exposure and or a haircut, a dividend recovery for some of the junior debt holders and of course the trade and tax creditors. CVA is as powerful as administration in most situations and is MUCH LESS damaging to the underlying business.
See our case study for Futuremedia plc as a good example of innovative CVA restructuring.
Tuesday 30 June 2009
See Linkedin for a debate on Scottish Corporate Insolvency and calls for Harmony with England
An interesting debate!
R3 calls for change
R3, the insolvency trade body, has welcomed the Calman Commission’s call to clean-up company insolvency law in Scotland by re-reserving all power on the issue to Westminster. And it strongly backed the Calman conclusions that changes should be made ‘with a minimum of delay.’
My reply to this debate can be found below. No guesses which way we would vote if allowed to.
KSA has an office 3 miles from Scotland and has been instrumental in driving the use of CVA's in Scotland despite enormous opposition from the incumbent large firms.
We have been involved in more than a dozen north of the border in recent years and all bar 2 CVA's are still trading. Indeed we have some very outspoken clients who were advised to dump their company and start again by Scottish insolvency practitioners. Thankfully they found us on www.companyrescue.co.uk ! They will happily give testimonials for KSA and the CVA tool.
We have had to resort to case law and English practice to get some of our clients extricated from the "wind it up, as all directors of insolvent companies are thieving from the creditors" approach. This crass view that all distressed directors are dissipating assets is behind what a Sheriff in the Court of Session told me personally, was "macho debt collection and posturing by the big firms to control the market".
When a company starts down the Company Rescue path we always advise them (as we did today actually on a new Edinburgh CVA client) to register a Caveat in the Court. A creditor may unilaterally issue a petition to wind the company up AND appoint a provisional liquidator to the company on the basis that he or she thinks the company is insolvent! This is madness.
Within 24 hours a liquidator can arrive out of the blue appointed by the Court on the unilateral whim of an aggrieved creditor, (s135 Insolvency Act 1986) This is why I say it is madness.
Don't believe me? Here is a true story. We were restructuring a Scottish electrical contractor. A CVA was being put together and KSA had written to all creditors asking for a period of time to put the CVA together. A winding up petition was served within 3 days and an application for a provisional liquidator accompanied it. We went straight to Court through a very good small law firm and Junior Counsel.
The plaintiff stated that they had sent an observer (I actually saw him when visiting my client) to observe the company's premises. The counsel for the creditor said, "we observed the directors removing the company's and therefore creditors' assets into vans outside the premises on the morning of ***" , he even kindly gave the Sheriff the registration numbers of the vehicles.
This "observation" was the electrician’s staff loading their vans before going out to their sites to work!
Needless to say the Court agreed with us and the petition/liquidator was blocked allowing time for the CVA to be put in front of ALL creditors.
Interesting to note that some of the English cousins of the perpetrators of such nonsense are very keen on CVA's, administration and company rescue. Yet the Scottish Brethren prefer to bury it, even if they don't know anything about it. Perhaps they need a partners meeting to discuss a more coherent British strategy!
There are two good things about corporate insolvency north of the border. One is the supportive and constructive approach of the HMRC departments. We find that by keeping them informed of the proposed solutions, the restructure work and finally the CVA proposal (for example) they are happy to get involved and are broadly very supportive.
The other? Caveat! It should not be necessary but it is and at least gives the client 24 hours warning of impending winding up action and appointment of provisional liquidators.
As turnaround and insolvency practitioners in England and Scotland we support the harmonisation proposals to bring Scotland into line with England and adoption of a company rescue policy in Scotland as soon as possible.
This could be a very interesting debate in the next few weeks.
R3 calls for change
R3, the insolvency trade body, has welcomed the Calman Commission’s call to clean-up company insolvency law in Scotland by re-reserving all power on the issue to Westminster. And it strongly backed the Calman conclusions that changes should be made ‘with a minimum of delay.’
My reply to this debate can be found below. No guesses which way we would vote if allowed to.
KSA has an office 3 miles from Scotland and has been instrumental in driving the use of CVA's in Scotland despite enormous opposition from the incumbent large firms.
We have been involved in more than a dozen north of the border in recent years and all bar 2 CVA's are still trading. Indeed we have some very outspoken clients who were advised to dump their company and start again by Scottish insolvency practitioners. Thankfully they found us on www.companyrescue.co.uk ! They will happily give testimonials for KSA and the CVA tool.
We have had to resort to case law and English practice to get some of our clients extricated from the "wind it up, as all directors of insolvent companies are thieving from the creditors" approach. This crass view that all distressed directors are dissipating assets is behind what a Sheriff in the Court of Session told me personally, was "macho debt collection and posturing by the big firms to control the market".
When a company starts down the Company Rescue path we always advise them (as we did today actually on a new Edinburgh CVA client) to register a Caveat in the Court. A creditor may unilaterally issue a petition to wind the company up AND appoint a provisional liquidator to the company on the basis that he or she thinks the company is insolvent! This is madness.
Within 24 hours a liquidator can arrive out of the blue appointed by the Court on the unilateral whim of an aggrieved creditor, (s135 Insolvency Act 1986) This is why I say it is madness.
Don't believe me? Here is a true story. We were restructuring a Scottish electrical contractor. A CVA was being put together and KSA had written to all creditors asking for a period of time to put the CVA together. A winding up petition was served within 3 days and an application for a provisional liquidator accompanied it. We went straight to Court through a very good small law firm and Junior Counsel.
The plaintiff stated that they had sent an observer (I actually saw him when visiting my client) to observe the company's premises. The counsel for the creditor said, "we observed the directors removing the company's and therefore creditors' assets into vans outside the premises on the morning of ***" , he even kindly gave the Sheriff the registration numbers of the vehicles.
This "observation" was the electrician’s staff loading their vans before going out to their sites to work!
Needless to say the Court agreed with us and the petition/liquidator was blocked allowing time for the CVA to be put in front of ALL creditors.
Interesting to note that some of the English cousins of the perpetrators of such nonsense are very keen on CVA's, administration and company rescue. Yet the Scottish Brethren prefer to bury it, even if they don't know anything about it. Perhaps they need a partners meeting to discuss a more coherent British strategy!
There are two good things about corporate insolvency north of the border. One is the supportive and constructive approach of the HMRC departments. We find that by keeping them informed of the proposed solutions, the restructure work and finally the CVA proposal (for example) they are happy to get involved and are broadly very supportive.
The other? Caveat! It should not be necessary but it is and at least gives the client 24 hours warning of impending winding up action and appointment of provisional liquidators.
As turnaround and insolvency practitioners in England and Scotland we support the harmonisation proposals to bring Scotland into line with England and adoption of a company rescue policy in Scotland as soon as possible.
This could be a very interesting debate in the next few weeks.
Labels:
Linkedin
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R3
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Scottish CVA's
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Scottish Insolvency
Monday 29 June 2009
Turnaround Finance Group 1st Thursday Event: Sponsored by KSA Group
1st THURSDAY NETWORKING
2nd July 2009
The next joint 1st Thursday Networking event will be held on Thursday 2nd July 2009 and will be sponsored by KSA Group
The location for this event is Cosmo Bar, 50-54 Clerkenwell Road, London EC1M 5PS (Location map below). Drinks will be served from 6:30pm.
For those of you who have not previously attended, the aim of this event is to promote networking opportunities and deal flow amongst the Turnaround community.
If you wish to attend this event please confirm by email to Louise_Moiseeff@tmp.co.uk or alternatively if you have any queries please do not hesitate to contact Louise on 020 7496 1014.
2nd July 2009
The next joint 1st Thursday Networking event will be held on Thursday 2nd July 2009 and will be sponsored by KSA Group
The location for this event is Cosmo Bar, 50-54 Clerkenwell Road, London EC1M 5PS (Location map below). Drinks will be served from 6:30pm.
For those of you who have not previously attended, the aim of this event is to promote networking opportunities and deal flow amongst the Turnaround community.
If you wish to attend this event please confirm by email to Louise_Moiseeff@tmp.co.uk or alternatively if you have any queries please do not hesitate to contact Louise on 020 7496 1014.
Labels:
KSA Group
,
TFG
,
Turnaround Finance Group
Thursday 25 June 2009
Management team of KSA
We finally got some new professional shots taken last week. Here is the KSA board and senior managers standing in the sun!
See http://www.companyrescue.co.uk/who-we-are for more details of the KSA team
See http://www.companyrescue.co.uk/who-we-are for more details of the KSA team
Labels:
Andrew Hunter
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Eric Walls
,
Grant Jones
,
Iain Campbell
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Keith Steven
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Marie Moody
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Philippa Allan
Clintons buys 196 stores for £250,000. Good Deal?
So the saga of Clintons and Birthdays rumbles on with the news today that Clintons is paying the administrators £3.5m for the 196 stores it wanted to keep. Or is it?
A report on BBC News online today says
Clinton buys 196 Birthdays stores
Clinton Cards has bought 196 stores from its former subsidiary chain Birthdays, which it had put into administration last month.
The company said the deal would ensure the employment of 1,450 people.
Birthdays went into administration in May when Clinton said it could not sustain the chain's £7m annual losses.
Clinton is paying £3.5m for the stores, £3.25m of which will come from writing down the amount Birthdays owes to Clinton Cards.
When Birthdays went into administration the chain had 332 stores and employed about 2,100 staff.
So the true payment that creditors will see is £1,275 per store.
Want to know more about administration?
A report on BBC News online today says
Clinton buys 196 Birthdays stores
Clinton Cards has bought 196 stores from its former subsidiary chain Birthdays, which it had put into administration last month.
The company said the deal would ensure the employment of 1,450 people.
Birthdays went into administration in May when Clinton said it could not sustain the chain's £7m annual losses.
Clinton is paying £3.5m for the stores, £3.25m of which will come from writing down the amount Birthdays owes to Clinton Cards.
When Birthdays went into administration the chain had 332 stores and employed about 2,100 staff.
So the true payment that creditors will see is £1,275 per store.
Want to know more about administration?
Labels:
Administration
,
birthdays
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Clinton Cards
Wednesday 24 June 2009
Life after 50
Wow doesn't time fly!? Its now 12 days since my last Blog about CVA for a LLP. a less dry blog today!
The last few days have seen a big rise in enquiries for KSA and we have had a very busy month for insolvency appointments in June. We have also recruited a new Insolvency Practitioner for our London office and he starts in 6 weeks or so. Watch this space for an announcement soon.
I also had the small matter of my 50th Birthday party to organise and that was finally held last Saturday near Holy Island off the Northumbrian coast. Judging by the number of calls and texts thanking me for a sore head it must have gone well!
Some of my pals could not be at my bash, instead they were doing Mount Kilimanjaro - congratulations to Jim Lang, Gordon Sutherland and William Grimsdale who got up and down without mishap or injury. Must have been all the training we did on Ben Nevis! Must say having done 5 hills / mountains in 4 weeks my legs were happy that I wasn't going on the trek with them.
So what is life like after 50? Well it seems even busier, frenetic even. Its been great seeing family and old friends and I hope now that I am a oldie they will stop by and see me more often! Its been a good year for us baby boomers, we have had a few 50th parties already but there are loads more of my friends hitting that magic half century in the next 12 months.
Let's see if our livers hold up.
The last few days have seen a big rise in enquiries for KSA and we have had a very busy month for insolvency appointments in June. We have also recruited a new Insolvency Practitioner for our London office and he starts in 6 weeks or so. Watch this space for an announcement soon.
I also had the small matter of my 50th Birthday party to organise and that was finally held last Saturday near Holy Island off the Northumbrian coast. Judging by the number of calls and texts thanking me for a sore head it must have gone well!
Some of my pals could not be at my bash, instead they were doing Mount Kilimanjaro - congratulations to Jim Lang, Gordon Sutherland and William Grimsdale who got up and down without mishap or injury. Must have been all the training we did on Ben Nevis! Must say having done 5 hills / mountains in 4 weeks my legs were happy that I wasn't going on the trek with them.
So what is life like after 50? Well it seems even busier, frenetic even. Its been great seeing family and old friends and I hope now that I am a oldie they will stop by and see me more often! Its been a good year for us baby boomers, we have had a few 50th parties already but there are loads more of my friends hitting that magic half century in the next 12 months.
Let's see if our livers hold up.
Friday 12 June 2009
How to Rescue a Law Firm Trading as a Limited Liability Partnership (LLP)
Company Voluntary Arrangement for a LLP
Many venture capital companies, hedge funds, law firms and accountancy practices trade as limited liability partnerships or LLP's.
LLP's are tax effective, flexible and offer a less risky trading structure akin to Limited Liability Companies. Unlike ordinary partnerships however, the individual designated members have limited liability.
So what happens when things go wrong and the business becomes insolvent? In many ways the solutions are the same as for companies. If a LLP is insolvent, distressed but could be viable, then CVA can be a powerful agent for restructuring. It may be necessary in some cases to place the company into administration first, but generally if the designated members act early enough a stand alone CVA will suffice.
If the LLP is NOT viable no matter what changes are made then liquidation is the most likely tool, or of course assets may be sold through administration.
Case Headlines
================
Our client is a medium sized firm of solicitors that had grown sales rapidly, with a number of estate agencies providing fast growing volume conveyancing income. Having acquired another firm of solicitors to grow commercial and litigation income, it was highly geared when the credit crunch hit in 2008.
Barclays Bank plc had provided loans for buildings and practice overdrafts. Other asset based lenders had provided practice acquisition loans and property development leases.
There was a well developed recovery plan but it was plain that the recovery depended upon cutting costs, closing non performing estate agencies, removing 30-40 people and the means to do that without a formal insolvency tool didn't exist.
Even if Administration was chosen by the bank or LLP or an administrative receiver was appointed, the Solicitors Regulation Authority would intervene, the costs of which would be a first charge on the assets of the LLP.
Clearly, this would severely reduce the value of assets available to the fixed and floating charge holders and unsecured creditors. The cost of the intervention would have been significant and the recovery (outside of fixed charges on property) for the bank negligible.
Keith Steven of KSA Group was invited by the designated members to review the situation and prepare a strategy for the turnaround. Barclays had also requested that BDO Stoy Hayward's London office review the position for the bank. The rescue was in effect a joint venture between BDO and KSA.
Using a CVA as the control technique was agreed as the best option but it appeared that very few if any LLP's had gone through such a process. Certainly no law firms had.
KSA has a unique bespoke CVA forecasting tool that is very powerful and maps the restructured balance sheet, shows profit and loss, balance sheet, cashflow and utilisation of funds forecasts month by month for 5 years. Proprietory forecasting tools cannot accurately map the effects of a CVA on the balance sheet without fudging and compromising the model's integrity.
Unfortunately the tax issues of a LLP were not something our forecasters had come across either! We had to restructure the model to show the effects of personal tax issues on an (effectively) corporate structure.
Taking advice from the HMRC on taxation of designated members was useful in this process, but without knowing the full scale of the losses in the business we were not able to precisely deal with the likely taxes in future. Assumptions were made about the opening tax position and HMRC agreed that that was a sound process and adjustments could be made in future.
HMRC recognised that, unlike a normal partnership voluntary arrangement, there was no need to prepare individual voluntary arrangements for the partners because of joint and several liability. As designated members they were protected by the LLP (providing they act properly).
Creditors were beginning to get restless and a concerted effort was made to inform them of the position, pointing out that the property market had almost collapsed and that a plan was under way to deal with the fall out. Generally our approach is to keep creditors informed of the rescue plans, process timetable, cost cutting and other headline issues.
Structuring the CVA proposals itself was more straightforward, we adapted the normal proposals to accommodate the modest number of differences between LLP and LTD. One notable difference is Section 214A Insolvency Act 1986 (Adjustment of Withdrawals) which sets out the policy if a LLP is wound up. In effect the designated members may be personally pursued for excessive withdrawals from the LLP, in a similar manner to wrongful trading.
Finally the CVA was ready and the nominees for the CVA were Mr Malcolm Cohen and Mr David Gilbert of BDO Stoy Hayward, 55 Baker Street, London, W1U 7EU. The deal was 71p in the £1, versus a likely deficiency of £2.8m in winding up equating to 3p in £1 in winding up. The 3p did not take into account the likely SRA intervention costs.
Barclays were very supportive and agreed some capital payment relief, as did some of the asset based lenders.
KSA introduced an independent part time Financial Director as part of the recovery programme. An ACA he is assisting in the provision of accurate monthly management information (a condition of the CVA is that the MI is provided to the joint Supervisors and Barclays).
The Creditors meeting was held in September 2008. No creditors attended the meeting with 100% of those voting sending proxies in favour.
Conditions remain tough for the LLP and the green shoots in the housing market are very important for this business to survive.
Summary
========
Viable LLP's can be deeply restructured and turned around using company voluntary arrangements (CVA's). Rules, structure and proposal process are very similar to limited liability company CVA's. Care needs to be taken with the tax implications of the designated members in the forecasting process.
For law firms the extra consideration is the possibility of intervention by the SRA (Solicitors Regulatory Authority) when administration or receivership is threatened.
With the future structure of law firms likely to change rapidly after the Clementi reforms become law, CVA presents a powerful solution for struggling law firms trading as LLP's.
Remember, in the event that a law firm trading as a LLP was to enter, administration, voluntary winding-up, or an administrative receiver was appointed, the Solicitors Regulation Authority would intervene, the costs of which would be a first charge on the assets of the LLP
Inevitably this would severely reduce the value of assets available to the fixed and floating charge holders and unsecured creditors.
Other LLP's can be sure that CVA can be powerful turnaround tool.
For further advice on LLP restructuring please contact KSA on 0800 9700539 or email keiths@ksagroup.co.uk
Many venture capital companies, hedge funds, law firms and accountancy practices trade as limited liability partnerships or LLP's.
LLP's are tax effective, flexible and offer a less risky trading structure akin to Limited Liability Companies. Unlike ordinary partnerships however, the individual designated members have limited liability.
So what happens when things go wrong and the business becomes insolvent? In many ways the solutions are the same as for companies. If a LLP is insolvent, distressed but could be viable, then CVA can be a powerful agent for restructuring. It may be necessary in some cases to place the company into administration first, but generally if the designated members act early enough a stand alone CVA will suffice.
If the LLP is NOT viable no matter what changes are made then liquidation is the most likely tool, or of course assets may be sold through administration.
Case Headlines
================
Our client is a medium sized firm of solicitors that had grown sales rapidly, with a number of estate agencies providing fast growing volume conveyancing income. Having acquired another firm of solicitors to grow commercial and litigation income, it was highly geared when the credit crunch hit in 2008.
Barclays Bank plc had provided loans for buildings and practice overdrafts. Other asset based lenders had provided practice acquisition loans and property development leases.
There was a well developed recovery plan but it was plain that the recovery depended upon cutting costs, closing non performing estate agencies, removing 30-40 people and the means to do that without a formal insolvency tool didn't exist.
Even if Administration was chosen by the bank or LLP or an administrative receiver was appointed, the Solicitors Regulation Authority would intervene, the costs of which would be a first charge on the assets of the LLP.
Clearly, this would severely reduce the value of assets available to the fixed and floating charge holders and unsecured creditors. The cost of the intervention would have been significant and the recovery (outside of fixed charges on property) for the bank negligible.
Keith Steven of KSA Group was invited by the designated members to review the situation and prepare a strategy for the turnaround. Barclays had also requested that BDO Stoy Hayward's London office review the position for the bank. The rescue was in effect a joint venture between BDO and KSA.
Using a CVA as the control technique was agreed as the best option but it appeared that very few if any LLP's had gone through such a process. Certainly no law firms had.
KSA has a unique bespoke CVA forecasting tool that is very powerful and maps the restructured balance sheet, shows profit and loss, balance sheet, cashflow and utilisation of funds forecasts month by month for 5 years. Proprietory forecasting tools cannot accurately map the effects of a CVA on the balance sheet without fudging and compromising the model's integrity.
Unfortunately the tax issues of a LLP were not something our forecasters had come across either! We had to restructure the model to show the effects of personal tax issues on an (effectively) corporate structure.
Taking advice from the HMRC on taxation of designated members was useful in this process, but without knowing the full scale of the losses in the business we were not able to precisely deal with the likely taxes in future. Assumptions were made about the opening tax position and HMRC agreed that that was a sound process and adjustments could be made in future.
HMRC recognised that, unlike a normal partnership voluntary arrangement, there was no need to prepare individual voluntary arrangements for the partners because of joint and several liability. As designated members they were protected by the LLP (providing they act properly).
Creditors were beginning to get restless and a concerted effort was made to inform them of the position, pointing out that the property market had almost collapsed and that a plan was under way to deal with the fall out. Generally our approach is to keep creditors informed of the rescue plans, process timetable, cost cutting and other headline issues.
Structuring the CVA proposals itself was more straightforward, we adapted the normal proposals to accommodate the modest number of differences between LLP and LTD. One notable difference is Section 214A Insolvency Act 1986 (Adjustment of Withdrawals) which sets out the policy if a LLP is wound up. In effect the designated members may be personally pursued for excessive withdrawals from the LLP, in a similar manner to wrongful trading.
Finally the CVA was ready and the nominees for the CVA were Mr Malcolm Cohen and Mr David Gilbert of BDO Stoy Hayward, 55 Baker Street, London, W1U 7EU. The deal was 71p in the £1, versus a likely deficiency of £2.8m in winding up equating to 3p in £1 in winding up. The 3p did not take into account the likely SRA intervention costs.
Barclays were very supportive and agreed some capital payment relief, as did some of the asset based lenders.
KSA introduced an independent part time Financial Director as part of the recovery programme. An ACA he is assisting in the provision of accurate monthly management information (a condition of the CVA is that the MI is provided to the joint Supervisors and Barclays).
The Creditors meeting was held in September 2008. No creditors attended the meeting with 100% of those voting sending proxies in favour.
Conditions remain tough for the LLP and the green shoots in the housing market are very important for this business to survive.
Summary
========
Viable LLP's can be deeply restructured and turned around using company voluntary arrangements (CVA's). Rules, structure and proposal process are very similar to limited liability company CVA's. Care needs to be taken with the tax implications of the designated members in the forecasting process.
For law firms the extra consideration is the possibility of intervention by the SRA (Solicitors Regulatory Authority) when administration or receivership is threatened.
With the future structure of law firms likely to change rapidly after the Clementi reforms become law, CVA presents a powerful solution for struggling law firms trading as LLP's.
Remember, in the event that a law firm trading as a LLP was to enter, administration, voluntary winding-up, or an administrative receiver was appointed, the Solicitors Regulation Authority would intervene, the costs of which would be a first charge on the assets of the LLP
Inevitably this would severely reduce the value of assets available to the fixed and floating charge holders and unsecured creditors.
Other LLP's can be sure that CVA can be powerful turnaround tool.
For further advice on LLP restructuring please contact KSA on 0800 9700539 or email keiths@ksagroup.co.uk
Labels:
CVA for LLP
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CVA for Solicitors
,
Limited Liability Partnership
,
LLP
Thursday 11 June 2009
CVA Expertise?
LinkedIn is a useful marketing tool. Thanks to the guys who have recommended me as below!
Recommendations For Keith - Managing Director KSA CompanyRescue
“Keith is a key component of the UK turnaround sector; he has a wealth of experience. I see company voluntary arrangements becoming increasingly popular in the current climate for troubled businesses as pre-packed administrations lose favour for very good reasons; namely they favour financial institutional creditors at the expense of Joe and Joanne Public Limited, your 'ordinary unsecured creditors. Keith is an expert in the field. I rate him highly.” June 8, 2009
Tim Rosser, Owner/Managing Director, Turning Circle Solutions Limited
was with another company when working with Keith at KSA CompanyRescue
“Keith and his team did a fantastic job getting our company with a very complex financial situation (connected CVA's, secured creditors, unsettled litigation, public company) approved for a CVA with 100% favourable vote from our unsecured creditors and 93% vote from Shareholders. Very impressive result, outstanding knowledge of the process (industry expert) and extremely creative solutions to get the connected CVA's approved. Highly recommend Keith and his firm Company Rescue (KSA) to help with you company's financial issues.” May 14, 2009
Top qualities: Great Results, Expert, Creative
George O'Leary
hired Keith as a Business Consultant in 2008
“Keith is one of the most creative and well informed turnaround professionals that I have worked with. He is without doubt the country's leading expert on the little used but hugely powerful Company Voluntary Arrangement ("CVA") mechanism. If your business is in trouble but is fundamentally viable then Keith is your man!” February 17, 2009
Garry Mumford, Managing Director, Insight Associates
was with another company when working with Keith at KSA CompanyRescue
Recommendations For Keith - Managing Director KSA CompanyRescue
“Keith is a key component of the UK turnaround sector; he has a wealth of experience. I see company voluntary arrangements becoming increasingly popular in the current climate for troubled businesses as pre-packed administrations lose favour for very good reasons; namely they favour financial institutional creditors at the expense of Joe and Joanne Public Limited, your 'ordinary unsecured creditors. Keith is an expert in the field. I rate him highly.” June 8, 2009
Tim Rosser, Owner/Managing Director, Turning Circle Solutions Limited
was with another company when working with Keith at KSA CompanyRescue
“Keith and his team did a fantastic job getting our company with a very complex financial situation (connected CVA's, secured creditors, unsettled litigation, public company) approved for a CVA with 100% favourable vote from our unsecured creditors and 93% vote from Shareholders. Very impressive result, outstanding knowledge of the process (industry expert) and extremely creative solutions to get the connected CVA's approved. Highly recommend Keith and his firm Company Rescue (KSA) to help with you company's financial issues.” May 14, 2009
Top qualities: Great Results, Expert, Creative
George O'Leary
hired Keith as a Business Consultant in 2008
“Keith is one of the most creative and well informed turnaround professionals that I have worked with. He is without doubt the country's leading expert on the little used but hugely powerful Company Voluntary Arrangement ("CVA") mechanism. If your business is in trouble but is fundamentally viable then Keith is your man!” February 17, 2009
Garry Mumford, Managing Director, Insight Associates
was with another company when working with Keith at KSA CompanyRescue
Labels:
Keith Steven
,
Linkedin
Bosses urged to tackle debts instead of Dumping them in Pre-Pack Administration
Richard Tyler's article in the Daily Telegraph today is an interesting one about company voluntary arrangements (CVA).
Readers of my web site, eNews and Blog will know I have long campaigned that the best recovery tool for viable, but insolvent companies, is the CVA.
CVA offers a return to creditors (when administration generally leads to nil dividend) , leaves the company under the control of the management, it is much less disruptive than administration or pre-pack administration or voluntary liquidation and finally allows radical restructure of costs, contracts, leases and employment. With a much lower cost of implementation than administration the fees available to Insolvency Practitioners are commensurately lower and therefore more cash stays in the business.
Administration has its place and is a very powerful tool for restructuring. In the recent example of Cobra Beer the main creditor would not agree to the (undisclosed) terms of a proposed CVA, so admin was required.
At KSA Group we have preached CompanyRescue for more than 14 years and we always consider the CVA as tool number one. Our expertise built over that time in over 400 cases means that we can often see a CVA solution where others see liquidation or administration.
To obtain your free 80 page experts guide to CVA's click here
Readers of my web site, eNews and Blog will know I have long campaigned that the best recovery tool for viable, but insolvent companies, is the CVA.
CVA offers a return to creditors (when administration generally leads to nil dividend) , leaves the company under the control of the management, it is much less disruptive than administration or pre-pack administration or voluntary liquidation and finally allows radical restructure of costs, contracts, leases and employment. With a much lower cost of implementation than administration the fees available to Insolvency Practitioners are commensurately lower and therefore more cash stays in the business.
Administration has its place and is a very powerful tool for restructuring. In the recent example of Cobra Beer the main creditor would not agree to the (undisclosed) terms of a proposed CVA, so admin was required.
At KSA Group we have preached CompanyRescue for more than 14 years and we always consider the CVA as tool number one. Our expertise built over that time in over 400 cases means that we can often see a CVA solution where others see liquidation or administration.
To obtain your free 80 page experts guide to CVA's click here
Wednesday 10 June 2009
Case Study: Pre-Pack Administration for London Recruitment Company
See our new case study on pre pack administration by clicking the link above
If you have a recruitment company with problems call Keith Steven on 07974 086779
Here is an extract from the case study......
Case Study: Pre-Pack Administration for a Recruitment Company
As licensed insolvency practitioners we are never really shocked at the things we hear and see. However, the scale of the fall in sales in this London based recruitment company was stunning.
From sales of £3m pa and making £250,000 net profit in 2007-8 financial year, this business was hammered by the recession and saw sales fall to under £600,000 pa, making a loss. The legacy debts to HMRC were much too big for the now smaller company to repay and the directors were like rabbits in the headlights. How could the company repay hundreds of thousands of tax debts, get rid of a lease on a too-big office and keep the business functioning? They had let most of the 25 recruitment consultants go keeping the most productive sales people, so costs were now lower but the ball and chain of the debt remained.
KSA considered a CVA solution first for this business but the CVA would have been difficult enough when a winding up petition was threatened and delivered by a supplier. A third party also had approached the directors offering to assist and fund the business in future. The deal was the third party investor would look after the financial reporting, offer space in its own offices and provide guidance to the management. The plan was for a new smaller business with nil debt and the "oldco" directors would be shareholders in "newco". After being dragged down emotionally by the debt pressure, this was too good an offer to refuse.
See the page for more content.
If you have a recruitment company with problems call Keith Steven on 07974 086779
Here is an extract from the case study......
Case Study: Pre-Pack Administration for a Recruitment Company
As licensed insolvency practitioners we are never really shocked at the things we hear and see. However, the scale of the fall in sales in this London based recruitment company was stunning.
From sales of £3m pa and making £250,000 net profit in 2007-8 financial year, this business was hammered by the recession and saw sales fall to under £600,000 pa, making a loss. The legacy debts to HMRC were much too big for the now smaller company to repay and the directors were like rabbits in the headlights. How could the company repay hundreds of thousands of tax debts, get rid of a lease on a too-big office and keep the business functioning? They had let most of the 25 recruitment consultants go keeping the most productive sales people, so costs were now lower but the ball and chain of the debt remained.
KSA considered a CVA solution first for this business but the CVA would have been difficult enough when a winding up petition was threatened and delivered by a supplier. A third party also had approached the directors offering to assist and fund the business in future. The deal was the third party investor would look after the financial reporting, offer space in its own offices and provide guidance to the management. The plan was for a new smaller business with nil debt and the "oldco" directors would be shareholders in "newco". After being dragged down emotionally by the debt pressure, this was too good an offer to refuse.
See the page for more content.
Wednesday 3 June 2009
Poor Laura, how DO you understand economics, reporting of Journalists
My daughter is taking an exam in Economics today, "DAD how DO I understand this nonsense text book"?
I quoted the old chestnut if you laid all the world's economists end to end you still wouldn't get a decision or, if you put 24 economists in a room, to discuss a problem you will get 36 answers!
So after all that banter what's the point of today's blog?
RECORD JUMP FOR HOUSING CONSTRUCTION
A headline on Telegraph online today, so what would you make of that headline? There has been a huge jump in new building starts? No. There has been a huge jump in construction spending on houses. NO! The end of the construction recession as growth rockets? NO NO NO
This stupid headline is to do with the "purchasing managers index". This is a report on the expectation of purchasing managers in industry, construction and services. The headline is actually completely misleading because the data showed continued decline in the house construction sector!
When reporting these indices they use a figure of 50, anything below 50 signals decline in the sector, any number above 50 shows growth.
So how come a figure of 48.5 equates to a RECORD JUMP OF HOUSING CONSTRUCTION, am I missing something?
Or is this nonsense just journalist looking for sensational headlines? Not just that really because some eminent economists jumped to quickly say.....
"These data are a further sign that the UK economy is past the worst of the recession"!!!
Or to put it another way if your business' sales were falling say 3% which these numbers point to, would you report to your board/ investors or bank that your business had had a RECORD JUMP in sales?
Semantics? Downwright nonsense? You decide.
I quoted the old chestnut if you laid all the world's economists end to end you still wouldn't get a decision or, if you put 24 economists in a room, to discuss a problem you will get 36 answers!
So after all that banter what's the point of today's blog?
RECORD JUMP FOR HOUSING CONSTRUCTION
A headline on Telegraph online today, so what would you make of that headline? There has been a huge jump in new building starts? No. There has been a huge jump in construction spending on houses. NO! The end of the construction recession as growth rockets? NO NO NO
This stupid headline is to do with the "purchasing managers index". This is a report on the expectation of purchasing managers in industry, construction and services. The headline is actually completely misleading because the data showed continued decline in the house construction sector!
When reporting these indices they use a figure of 50, anything below 50 signals decline in the sector, any number above 50 shows growth.
So how come a figure of 48.5 equates to a RECORD JUMP OF HOUSING CONSTRUCTION, am I missing something?
Or is this nonsense just journalist looking for sensational headlines? Not just that really because some eminent economists jumped to quickly say.....
"These data are a further sign that the UK economy is past the worst of the recession"!!!
Or to put it another way if your business' sales were falling say 3% which these numbers point to, would you report to your board/ investors or bank that your business had had a RECORD JUMP in sales?
Semantics? Downwright nonsense? You decide.
Monday 1 June 2009
They don't come much bigger than this. GM Files Chapter 11
Well the waiting is finally over, once the world's biggest manufacturer, GM has finally entered insolvency protection. The yanks call it bankruptcy protection.
Like the bail-out of the banks here in the UK, the US Government will emerge as the largest stakeholder in new style GM. It will hold circa 60% of the equity and in effect underpin the future of the business. This will surely lead to other car manufacturers complaining about GM receiving subsidy, but that's for the future.
What now for the people who supply, GM, Opel and Vauxhall here in the UK?
My post on 2nd December mentioned that we had a client that supplies GM in the US and UK. They were rescued by a company voluntary arrangement earlier this year and can now SURVIVE the GM implosion, in addition (new) GM wants to continue buying their services and will probably have to pay in advance. Nevertheless, the £200k hit to cashflow and subsequent loss will certainly not help their recuperation.
If this huge insolvency impacts a business in the UK, then the board should, of course, take all such steps possible to protect their business, rapidly and with good guidance. Using any excuse to get the company restructured is fine BUT now you can blame GM. After all it was once the biggest company in the world, yet it failed.
By the way, on a related subject, the Leader Article of The Times stated Saturday 27th May, that the UK needs Chapter 11 style protection for companies. This is the old chestnut, "now there is a big recession - we need better insolvency law"! The people who write these things don't have any real understanding of UK insolvency.
We already have two excellent insolvency techniques:
Administration - this can protect a business while it is restructured, sold or placed into a
Company Voluntary Arrangement - a deal between the debtor company and its unsecured creditors to restructure and protect the business.
If insolvency practitioners, banks and directors use these techniques in an innovative way, work to achieve a consensual outcome and set out sensible proposals, then I believe we don't need any other Chapter 11 style rules.
The Government recently announced that it may improve the moratorium rules for CVA's (to allow greater protection from creditors) and also said it will look at new forms of debtor in possession financing to ensure that restructured companies get the funding they need in Administration or CVA. Neither initiative may progress if we have an Autumn election of course.
Getting back to GM. Will this be the last big auto failure this year? No don't count on that. There is still a chance that Vauxhall enters administration. Fiat could find Chrysler too big a morsel to swallow and die trying, quite how putting together two basket cases makes one sound proposition is beyond me. Saab is in Swedish "Chapter 11" and if its market share declines much further any rationale for saving it becomes less compelling.
You could of course see the Chinese auto companies buy some of these troubled companies as a bridgehead into Europe. How interesting that would be.
Like the bail-out of the banks here in the UK, the US Government will emerge as the largest stakeholder in new style GM. It will hold circa 60% of the equity and in effect underpin the future of the business. This will surely lead to other car manufacturers complaining about GM receiving subsidy, but that's for the future.
What now for the people who supply, GM, Opel and Vauxhall here in the UK?
My post on 2nd December mentioned that we had a client that supplies GM in the US and UK. They were rescued by a company voluntary arrangement earlier this year and can now SURVIVE the GM implosion, in addition (new) GM wants to continue buying their services and will probably have to pay in advance. Nevertheless, the £200k hit to cashflow and subsequent loss will certainly not help their recuperation.
If this huge insolvency impacts a business in the UK, then the board should, of course, take all such steps possible to protect their business, rapidly and with good guidance. Using any excuse to get the company restructured is fine BUT now you can blame GM. After all it was once the biggest company in the world, yet it failed.
By the way, on a related subject, the Leader Article of The Times stated Saturday 27th May, that the UK needs Chapter 11 style protection for companies. This is the old chestnut, "now there is a big recession - we need better insolvency law"! The people who write these things don't have any real understanding of UK insolvency.
We already have two excellent insolvency techniques:
Administration - this can protect a business while it is restructured, sold or placed into a
Company Voluntary Arrangement - a deal between the debtor company and its unsecured creditors to restructure and protect the business.
If insolvency practitioners, banks and directors use these techniques in an innovative way, work to achieve a consensual outcome and set out sensible proposals, then I believe we don't need any other Chapter 11 style rules.
The Government recently announced that it may improve the moratorium rules for CVA's (to allow greater protection from creditors) and also said it will look at new forms of debtor in possession financing to ensure that restructured companies get the funding they need in Administration or CVA. Neither initiative may progress if we have an Autumn election of course.
Getting back to GM. Will this be the last big auto failure this year? No don't count on that. There is still a chance that Vauxhall enters administration. Fiat could find Chrysler too big a morsel to swallow and die trying, quite how putting together two basket cases makes one sound proposition is beyond me. Saab is in Swedish "Chapter 11" and if its market share declines much further any rationale for saving it becomes less compelling.
You could of course see the Chinese auto companies buy some of these troubled companies as a bridgehead into Europe. How interesting that would be.
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