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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 ! 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.

Monday, 29 June 2009

Turnaround Finance Group 1st Thursday Event: Sponsored by KSA Group


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 or alternatively if you have any queries please do not hesitate to contact Louise on 020 7496 1014.

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 for more details of the KSA team

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?

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.

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.


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

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

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

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.

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?


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.
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