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Tuesday, 27 January 2009

Company Voluntary Arrangement for Stylo. Will more CVA's result

CVA - a way to play fair?
According to David Wighton, Times Business Editor, the company voluntary arrangement for Stylo, Barratts shoes and Priceless chains is a promising development. His article is short critique of the CVA tool and how it can be used to exit leases, vary leases and contracts proving our long held view that CVA is preferable to Administration pre-pack.

Here is an extract

"In the Stylo case, the shoe retailer's subsidiaries have been placed in administration with the aim of rescuing them as going concerns. The administrators will propose company voluntary arrangements to the creditors that will include reduced rents. The rights of employees and the companies' liabilities under the group pension scheme will not be affected.

The process appears to offer more equitable treatment and greater transparency for all parties, and the top creditors, including landlords and lenders, are supportive.
If successful, the idea could be adopted by other distressed companies seeking to preserve value"

The Stylo CVA is designed to force the the landlords of the 400 off shops to change their old fashioned leases to a 3% of turnover base. This flexible rental will allow the company to survive in tough times and give the landlords a fair share of the upturn when it eventually arrives.

So will Britain finally "get" the CVA, we truly hope so, it saves many companies, bank loans, creditors monies and jobs. Surely that's better than dumping the debt, employees and pensions?

If your retail business is talking to insolvency practitioners make sure that the CVA option is considered carefully, don't simply accept the IP's favourite tool - pre-pack administration!

Tuesday, 13 January 2009

Frightening say British Chambers of Commerce? Read my 2009 predictions in my 100th blog!

Welcome to my 100th BLOG!

Afraid our dire predictions of December 2007 on are now coming home to roost. Hopefully, the people using our website started cutting costs and thinking about managing cashflow daily using our free tool, back then.

I also blogged on cost saving tips back in our first blog on 20th May 2008:

So in January 2009 what are our predictions?

Today the British Chamber of Commerce (BCC) stated the decline in the economy was "frightening"

Listen in Germany, Spain, China, Russia, Japan and USA manufacturing collapsed in Q4 of 2008, the largest falls ever recorded in some cases. So this announcement of a fall in trade in the UK is hardly surprising. Indeed some might say many of these trade bodies were too optimistic for too long into this mess, or were they talking things up in a rather forlorn hope that, like Canute, they could stop the tide?

My first prediction is 1.5% drop in GDP in Q4, 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. Could this therefore, be the worst recession since the 30's. Actually many of my older colleagues and clients think it already is the worst they have experienced.

Secondly, the credit crisis is choking cashflow for companies, so many are considering reductions in staff and overheads. What is the key worry here? Some say don't cut jobs, as you need to be ready for the upturn, "yeh right". I say save your business and get costs cut now. I predict 1 million will join the benefits queue in 2009.

Thirdly, the banks will have to come clean about the vast losses they are hiding on their balance sheets. Expect to see some of them being bailed out again and being fully nationalised. Or the least worst option, we, the tax payer, take on the toxic assets in a new vehicle and free up the banks capital.

Final prediction. Yesterday's grim new on jobs and company failures will become a flood like it did in 1991 with daily failure/job loss updates on the news at ten. Expect to see journalists drop "credit crunch" and instead start to use "recession" and "depression" from 23rd January onwards.

Grim yes, over doing it? We don't think so.

Our own business has a seen a large jump in enquiry flow. Indeed, many people / companies are already past being rescued, despite not feeling at risk only 12 months ago. The numbers contacting CompanyRescue are still on a firm upward trend. So we agree with BCC at last - it is frightening for businesses out there.

Call turnaround and insolvency practitioners a barometer if you like; our barometer is deep in stormy weather territory and still falling.

Thursday, 8 January 2009

Get something for nothing in the Google age? Marketing ideas for YOUR business - make everything free online?

An interesting article this on BBC today.....

"Is the business model of the future one where the customer no longer pays? Already products in the digital marketplace are being given away free, yet companies are still making profits".

The author of a new book on this subject (to be published later this year) is Chris Anderson, he is editor-in-chief of Wired magazine.

His premise is this, in the Google age we are used to getting things free, information, guides, tools, software, games, you name it. We all expect something for nothing and with virtually free distribution possible online, then this perfect world for consumers /customers already works.

Take it is an example of this model. We kind hearted souls provide over 1,000 pages of FREE information on our websites, we provide free guides, free flowcharts, free case studies, free reports, free case law and free comparisons between options. We download thousands of pages and guides every week to our visitors, FREE.

People have asked me for years how can we do that? Why give away all that "secret" information!!!

Well we work with a tiny percentage of the visitors who come to CompanyRescue website, the fees they pay for hands on advice and turnaround and rescue work, in effect pays for the free advice dispensed to the huge majority who simply visit for that free information.

Our premium customers, if you like, pay for the FREE site.

By working on interesting unique cases all over the country we improve our craft and our experiences; in turn these are fed back into the website and new guides are written, new case studies, sometimes new case law is covered. So the free users get great information and advice paid for in effect by our turnaround clients.

If you are marketing for your business think carefully about the expertise that you have embedded in the business, in the employees and managers heads, you are all experts. You know things that seem trivial and yet, they are little gems for the people who don't know the answers!

So we suggest the following is the best marketing investment you will make this year. Oh and its cheap and easy.

Capture and filter that information that you all have in your heads; put it onto your website and blog, by having lots of information online you will attract Google and the other search engines. The more (regular information you publish the more the search engines will rate your pages as interesting important and RELEVANT to the enquiries being typed in by users. These are called search strings, ensure you review the strings that people are using, make sure that you provide relevant answers and pages. Soon traffic will grow, soon activity will grow.

Try to provide lots of free guides, examples, designs, case studies, ideas and suggestions. KEEP doing it and adding regular updates. Over time the world will see you as an expert in your field and you will build trust. Get some of your friendly staff to offer free answers to people who contact you asking questions, be the expert FREE OF CHARGE.

When and if they want a product or service like yours who are they going to call?

Wednesday, 7 January 2009

What is a preference in insolvency, new guide from CompanyRescue

"Keith, we look like going bust and we have lots of creditors. I am thinking of starting a new business and I need to protect some suppliers, can we pay my friend John his invoices before liquidation? That way he will supply "newco".

Every day in insolvency we hear questions like this one. By asking this type of question a director tends to indicate that deep down, he or she feels it is somehow wrong. Like the old saying, if it smells off, then it generally is off!

A straightforward plain English guide to s239 Insolvency Act 1986 - or s243 Unfair Preferences in Scotland.
A potential PREFERENCE occurs when a company pays a creditor(s) and by doing so makes that creditor "better off" than the majority of other creditors, before going into a formal insolvency like Administration or liquidation. However, the second important test is that there must be a "desire" to make that creditor better off. In the example question above my client wanted to make John better off.

This is an area of insolvency law that is commonly misunderstood, but can cause many problems for those who create the preference. If proven it can lead to action against the beneficiary, action against the directors, lifting of the veil of incorporation, personal liability and disqualification under other provisions of the insolvency legislation.

Please visit this page for a "case study" of Acme Nuts & Bolts Ltd

Although a fictional case to protect our clients, it is very similar to many we have seen first hand.

How do we avoid creating a preference?
The safest route is to ensure that all creditors are treated "equally". If that is not possible then ensure that if one creditor is being paid faster than others that there is a very strong commercial reason. For example you may wish to pass a board resolution to"pay XZY Ltd as it maximises the interest of creditors to pay XZY Ltd as they're our only supplier of widgets, by paying them we keep the factory going and generate debtors, while we consider the rescue or insolvency options".

Ensure that you regularly consider of the company's solvency, you may ask for a time to pay PAYE or VAT along with asking the bank for support, introduction of new capital. If all of this is not sufficient to prevent the company running out of cash, then more radical solutions must be considered, such as administration and liquidation, company voluntary arrangement or receivership.

This is a path that requires professional advice, common sense and full discussion by the board and regular, proper documentation of decisions to continue trading and to pay suppliers taken at board and management levels.

If any doubt persists we strongly advise speaking to expert insolvency advisors.

Friday, 2 January 2009

New Guide to Trading Whilst Insolvent from KSA CompanyRescue

"I have heard that trading whilst insolvent will lead to disqualification of the directors, is that true"?
Recent turmoil in the UK economy will lead to more and more companies facing uncertainty and financial difficulty. As a director you are protected from the consequence of a failed company by the “veil of incorporation”, PROVIDED that you acted reasonably, responsibly and within the law.

The key points to remember are if your company is insolvent, the directors have to take care. Under UK law, trading whilst insolvent can breach several provisions of the Insolvency Act 1986 which may have the effect of making directors of a company personally liable to contribute to the assets of a company.

The main provisions of the Insolvency Act 1986 that you should be aware of are:

Wrongful trading - Section 214 Insolvency Act 1986:

Transaction at an undervalue - Section 238 Insolvency Act 1986

Preference - Section 239 Insolvency Act 1986 (Unfair Preferences in Scotland s243)

If the company IS insolvent and if the board of the company continues to trade whilst it is insolvent, the directors of the company may become personally liable to contribute to the company's assets and help meet the deficit to unsecured creditors if the company's financial position is made worse by the directors continuing to trade, instead of putting the company immediately into liquidation.

In other words that veil of incorporation can be lifted and the directors’ protection removed. Then you may face wrongful trading accusations and possibly even directors disqualification.

How do I avoid personal liability?

Make sure that you read our guides to wrongful trading and is our company insolvent. You should also have up to date management accounts and financial information. It would make sense in such scenarios to have a daily cashflow model as well as budgets for profit and loss.

Secondly, make sure that you are fully aware of the current position: for example as a sales director you MUST know the financial position even if its not your area of interest.

Have regular minuted board meetings to discuss the position, question the cashflow and numbers and take decisions to act. this will help protect you and underpins why you were taking the decisions to continue trading, ask for time to pay tax and had carefully thought things through.

If the company’s performance continues to weaken and for example the board cannot meet redundancy payments, then more radical surgery may be required such as administration, company voluntary arrangement or it may be time to liquidate if the company is not viable and cannot be restructured.

The liability in respect of other transactions only extends for a certain period of time prior to the company going into liquidation. Directors are exposed in respect of transaction at an undervalue, preferences for example if the transaction occurred: a) whilst the company was insolvent; and b) within 2 years before the onset of liquidation if the transaction was with a connected person, and 6 months if the transaction was with an unconnected person.

What if we HAVE traded whilst knowingly insolvent?

Directors who continue to trade whilst insolvent may face disqualification under the Company Directors Disqualification Act 1986 if the company goes into liquidation.

Under the provision of the Act, when a company goes into liquidation, the liquidator must make a report to the Disqualification Unit of the Department of Trade and Industry on the conduct of all directors or shadow directors. This is called a "D report" and most often these are mildly negative or positive.

If the liquidator has discovered wrongful trading or conduct which in his or her opinion, makes the directors unfit to be involved in the management of a company in the future DBERR, (was DTI) may apply to the Court for an order disqualifying the director or directors from acting as a company director for a certain period.

It should be noted that director’s disqualifications are still relatively rare (there are only around 1,000-1,500 per year) but with a special web site to stop rogue directors continuing to act illegally.

In the early part of this decade Government policy was also beefed up with the introduction of the Insolvency Act 2000. Part of that legislation was designed to speed up the disqualification process and increase the volume of directors disqualifications.

In a "fast track" approach directors can admit they have acted wrongly in return for lower penalties. In other words rather than take 3-5 years to proceed with actions by the state followed by, say, an 8 year ban, the director can elect to admit liability immediately for say a 2-3 year ban.

So what is your advice to avoid trading whilst insolvent, wrongful trading and possible personal liability?

If it smells off it generally is OFF is the best place to start!!

Acting sensibly, reasonably and responsibly is always the best policy for directors of limited companies. If the company has cashflow problems, ACT, hold meetings, regularly, prepare financial information, plan to do deals with creditors or a CVA, introduce new money, and take salary sacrifices. These can all help, but if the business condition starts to deteriorate, then ACT quickly, get professional advice and set out a plan.

We are happy to discuss the content of this guide with any director or advisor to a company, simply email or call free of charge on 0800 9700539
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