Please visit http://www.companyrescue.co.uk/ for confidential help and insolvency advice or email keiths@ksagroup.co.uk

Thursday, 30 April 2009

Do Recruitment Companies Herald a New Downturn

THE RECRUITMENT SECTOR IS FALLING OFF A HUGE CLIFF

We have had more than 2 dozen enquiries from recruitment companies in the last fortnight.

All these directors are saying the same thing - sales were falling and we were surviving. THEN sales just collapsed.

What does this mean???

Could it mean that, finally, companies are stopping recruitment, cutting costs and shedding staff, this seems to be even happening in London where this fall off has not been seen before in this crunch/recession. I think the signs from this are huge for the economy. Does it mean a big job cull has got under way?

Here are my views:

1. With such a big drop in sales for recruitment companies, all will have lots of debt to Crown creditors PAYE and VAT. But the governments time to pay deal programme won't work. Spreading tax payments out when the debt is based upon a much larger turnover from the past, means future smaller turnover is hobbled by legacy debts. So those that can survive need to dramatically slim down , exit property and do CVA’s to survive.

2. Landlords will be hit hard as space is evacuated rapidly; they will see tough times ahead. Liquidations and CVA's kill leases.

3. Those recruitment companies that survive could grow quickly post 2008-2010 recession. Good opportunities lie ahead for the survivors.

Good luck to all recruitment companies, but make sure you get your costs down HARD and survive.

Tuesday, 28 April 2009

More Companies at Risk of Insolvency

Begbies Traynor produce a quarterly report on British companies with serious debt issues. By looking at companies with an insolvent balance sheet filed at Companies House (always well behind the event), or winding up petitions and or a County Court Judgment over £5,000, the Red Flag survey monitors the health of deteriorating companies.

Begbies latest release (see below) is worrying but consistent with the sharp rise in companies with time to pay deals with HMRC for PAYE and VAT.

I belive that there are over 100,000 UK companies with very serious insolvency issues, that are just surviving day to day. On top of that as many as 250,000 will be finding cashflow tough.

Extract from Begbies Red Flag Release on 27th April
======================================
The statistics for the first quarter of 2009 show all sectors to be suffering from substantial growth of both Significant and Critical adverse actions, in comparison to the same period a year ago.

With regard to industry sectors the Red Flag statistics indicate that Property Services, Construction and Financial Services have been hardest hit when compared to Q1 2008. Other major sector casualties include Retail, Advertising, Automotive, Transport & Communications, and Manufacturing.

The total number of companies showing signs of stress (both significant and critical problems) has risen to 84,648 in March 2009 compared to 53,240 a year ago, an increase of 59%.

Monday, 27 April 2009

JJB Company Voluntary Agreement (CVA) approved today

Good news for the creditors and employees of JJS Sports plc and Blane Leisure Limited today, the creditors have approved a Company Voluntary Agreement (CVA) that sets out to determine leases on empty shops in exchange for 6 months rent on average.

This innovative scheme was a great use of the Company Voluntary Agreement (CVA) tool. Well done to KPMG and the other advisors to JJB. We believe that more and more struggling companies should use CVA's instead of administration or pre pack administration to restructure their business.

If you want to read more about the CVA tool see here or visit the Financial Times (click here) to learn more about me and CVA's.

This news could mean that no administration is required and up to 12,000 jobs could be saved. A good days work!

Friday, 24 April 2009

KSA Group Launches Media Room for Journalists

NEW! Media Room launched for use by Journalists and other media people today.

It's still a work in progress but it will soon have a lot of resources for journalists looking to find out more about KSA, Companyrescue and our people.

In time our press releases and eNews will be linked directly out of this page, along with people profiles, simple flowcharts and guides for media people.

See here for more information

If you need to ask any questions, obtain press copy or stories about our work, please contact Keith Steven on 07974 086779 or keiths@companyrescue.co.uk

Beermat Entrepreneur and Saturday's Financial Times features Company Rescue

The well known "Beermat Entrepreneur" and journalist Mike Southon interviewed me recently for his weekly blog/ ezine, Mike also writes articles most Saturdays in the Financial Times (see here for online version)

This week, 25th April, the FT will feature the article (below) written about Company Rescue issues. Thanks to Mike for inviting me to share my views on CompanyRescue, the fantastic rescue tool for struggling companies called company voluntary arrangements.

I highly recommend Mike's excellent website and marketing guides here http://www.beermat.biz/index.php

Below is my column about the ‘Magic Email’, that will feature in Saturday’s Financial Times, which can be found in the entrepreneurship pages of the Money section. You can also find my columns on the FT web site here: http://www.ft.com/mikesouthon

The number of companies failing continues to rise as the recession bites and bills mount up. Dealing with creditors is one challenge, but when an impending tax demand puts the company payroll at risk, disaster may not be far away.

In these difficult times it is useful to remember the lessons of the last recession and talk to someone with first-hand experience, such as Keith Steven. Back in 1991 he was running a retail chain but the company became over-extended and he found himself at loggerheads with his various landlords and the bank. It became clear that the company was in dire straits, and it eventually went into receivership.

Looking back, he concluded that he had not been offered the full range of options, only liquidation. He therefore resolved to use his own experience to help others in this situation and formed KSA Turnaround, which specialises in company rescue.

The challenge in rescuing companies is in the essential nature of most entrepreneurs. To start a business, you have to be confident; many entrepreneurs are driven, motivated and extrovert people. For them, risk is something to be relished or even totally ignored.

Dealing with entrepreneurs on a daily basis, I am often reminded of Mr Micawber from David Copperfield, who was always convinced ‘something will turn up’. For entrepreneurs, this is typically a big order that has been on the horizon for some time. When this fails to materialise, optimism turns instantly to despair; Mr Micawber was always being pursued by his creditors.
The challenge is to understand, the earlier the better, that you need help, specifically in cash flow management. Many entrepreneurs will admit a form of fiscal dyslexia; their eyes glaze over when confronted with a spreadsheet, even if they have a full or part-time finance expert as part of their team.

A good exercise is to re-examine your management accounts and put in the assumption that 25% of your predicted revenue just goes away and your largest customer suddenly decides to buy from one of your most aggressive competitors. Then assume your biggest suppliers will no longer be so flexible on payment and look at the ‘spikes’ in your cash flow, the times when payroll and taxes have to be paid.

Steven and his team of company rescuers can do their best work when it is early enough to have a sensible look at your fixed costs and see if, for example, it is possible to renegotiate the terms of your lease.

Landlords commonly ask for a year’s rent in advance, terms you were willing to accept just after that funding round. Your moving to a monthly payment scheme will have a radical effect on your cash-flow and may even save your company, avoiding defaulting on your lease, which is, of course, your landlord’s worst nightmare.

This approach is based on a sensible dialogue with both parties’ interests at heart and can be extended to all your creditors. This includes your suppliers, the bank and even the tax authorities, who can be very reasonable if you approach them correctly. But any negotiation should be done on your behalf by people like Steven and his team, who have not only made an honest appraisal of your business, but also speak the language of finance that your creditors understand.

Ideally, a company rescue is done in good time to prevent, rather than just treat the disease. If the patient is not quite terminal, then there are other steps before liquidation receivership or administration, including the Company Voluntary Arrangement (CVA). Steven defines this as a deal between the company and its creditors to repay them from future profits or by selling some of the assets of the business.

In this situation the directors remain in control of the company, personal guarantees do not usually get called in and it gives the business a fighting chance to survive. This stops pressure from tax, VAT and PAYE while the CVA is prepared, and you can potentially use the instrument to terminate employment contracts, leases, onerous supply contracts and even landlords leases if this is what is required to restructure the company into profitability.

Even the sensible approach of a CVA can be a mortal blow for the confidence of an entrepreneur, who almost invariably started their company with the best of intentions. The aim should be to exit the process with not just some self-respect, but also your family home, marriage and sanity intact, as Steven himself did back in the last recession.
KSA Turnaround can be found http://www.companyrescue.co.uk

Wednesday, 15 April 2009

Time to Pay PAYE, NIC, Corporation Tax or VAT; 106,000 take advantage.

Over 106,000 firms have taken advantage of the Governments offer to spread payments of PAYE, NIC and VAT over considerable periods of time. Over £1.8billion has been deferred.

In London, the number of companies taking advantage of the scheme has now reached nearly 12,000.

Many of these will benefit from the short term cashflow fix that deferring tax can bring. But being a cynic I would suggest that many are simply clinging on for dear life and not actually taking steps to fundamentally restructure their distressed and INSOLVENT business.

Insolvent? Well yes failure to pay creditors as an when they fall due, is a test for insolvency. See here for the three tests to work out Is my Company Insolvent?

So, spread tax payments out if you can, but also look at the costs of the business. Assess sales and margins, calculate "what if" scenarios, for example what if your top 5 customers all delayed orders for 2 weeks, or more pertinently delayed paying for 4 weeks?

Simply deferring tax is not enough, although 106,000 companies may think it is?

If you need help to ask for time to pay see out Time to Pay Programmes here.

Tuesday, 14 April 2009

Company Voluntary Arrangement for JJB Sports - technical issues with landlords.

Nicely written article about the use of a company voluntary arrangement (CVA - click for quick guide) by Sarah Butler in the Times yesterday. At last someone has spent time researching the subject well and presenting a piece that takes in the views of one of the top retail turnaround experts, Sir David Jones (Next and Morrisons).

Ms Butler has asked the key questions - what is the CVA deal, what are the aims, what do creditors think? I understand from her article that the CVA is proposing that the leases for 140 closed and unwanted stores are determined in exchange for 6 months rent, about £10m.

As we constantly tell people the CVA is a very powerful tool to determine leases and contracts such as management contracts, employment contracts, leases and HP agreements. However, in JJB's case I suspect that the advisors have had to carefully balance the shop lease determinations with pragmatism. WHY?

Under the case law that guides CVA practitioners (Re: Doorbar v Alltime Securities Ltd (1995) BCC 1149 and Re Park Air Services plc (1997)) the claims of the landlords once the lease is determined can be quite substantial. Without going into too much detail here, the basic rule of thumb is the landlord can VOTE in the CVA for the expected period of void.

For example if a RICS qualified surveyor thought the shop property would take 12 months to re-let (possibly with rent free periods) then the landlord is able to vote in the CVA process for the equivalent of 12 months rent. If the surveyor advising the CVA practitioners and or the landlord estimates that the current rack rental being paid by the company entering CVA, is now unobtainable, the landlord can VOTE for the difference between current rack rental and future expected rack rental.

So (I surmise) that, with 140 shop landlord claiming 6-12 months PLUS the lower rental differentials, their combined voting power will be enough to control the outcome of the CVA creditors meeting. As many of you will know, in a CVA the company's proposals need to be approved by 75% by value, of the votes cast by eligible creditors. So 140 store landlords will probably control the voting outcome.

The Times journalist has canvassed some opinion and it seems because the landlords are being offered 6 months rent, many seem supportive.

Compare this with the Stylo plc outcome. There the Administrator's proposals, to the many landlords he attempted to compromise by the CVA, seemed to be "take it or leave it", apologies to the administrator if I report this incorrectly! In the Stylo case the landlords voted the CVA down.

Here is a well written extract from Sarah Butler's piece on the voting and what Sir David Jones thinks about it....

"Leading landlords and property insiders spoken to by The Times agreed that JJB's proposal was “realistic,” “fair” and “open” and they were encouraged that the management team had a clear plan to take the business forward. They said that JJB's CVA was likely to be successful because, unlike the failed CVA put forward by Stylo, the footwear retailer, in February, it was focused on renegotiating leases on empty stores, not those it wished to trade from.

However, some landlords oppose all CVAs in principle, because they put the bulk of the pain of a failing retailer on to creditors. And even if the CVA does gain approval from the majority of creditors, those who felt aggrieved could launch a court challenge within 28 days. It was just such action that scuppered a CVA by Powerhouse, the electrical retailer, several years ago.

Shareholders will also have to vote on the deal, with a 50 per cent yes vote required to pass the CVA.


Sir David says that he is not concerned because the way the CVA has been structured means that the creditor vote takes precedence over shareholders' views, but again that is open to legal challenge".

I don't agree with the comparison to Powerhouse however, the section 6 Insolvency Act application after the CVA for Powerhouse was initially approved, was on the basis of unfair prejudice against the landlords who had obtained parental guarantees from Powerhouse's parent company - Pacific Retail Group. This CVA tried to determine the parental guarantees unilaterally. The landlords appealed under s6 and won. Interestingly to me, the judgment set out the reasons why; basically the compromise "may" have worked if the parent company and or Powerhouse had offered something acceptable to the landlords in exchange for the determination of the lease and the guarantees. It did not.

So looking at JJB it would appear that lessons have been learned. In my view, CVA's are not and should not be presented as a fait accompli that will always be approved by the creditors. CVA's are however a massively powerful restructuring tool where the stakeholders (unsecured creditors, secured creditors, customers and shareholders) are all in general agreement.

By offering a deal to landlords that will ensure they have at least income for say 6 months to re-let the property, perhaps the body of creditors will agree to the JJB restructuring whereas Powerhouse and Stylo were rejected.

The moral here is this: in an ideal world the CVA should be carefully prepared, advisors should take regular soundings from the creditors and collectively a deal should be put forward that already has general consensus. KSA's style is to talk to ALL creditors whilst preparing the CVA deal structure. This canvassing helps us shape the deal. More often than not the CVA is approved well before the formal creditors meeting and few creditors attend.

Thursday, 9 April 2009

Pre-pack Administration "stiffing creditors"?

In discussing a pre-pack administration of Trust-Est Ltd (a wealth management company) City Diary in the Daily Telegraph today used a term that is gaining momentum.

Extract from City Diary 9th April 2009:

"Banking on pre-pack administration

An interesting take on pre-pack administrations, the method by which directors can put their businesses into administration, buy back the bits they want, and leave creditors to whistle.
Wealth management company Tru-Est ran into a spot of bother with its own wealth earlier this year. A quick restructuring and most of the business emerged as PAM Insight. On the way creditors lost roughly £700,000, including, as ever, the taxman, down by £250,000.
Still, management stayed on and the company's banker, Coutts (which you will remember is owned by state-controlled RBS) also got paid off and is now the new company's banker.


The taxpayer gets stiffed and the banks do quite nicely. Where have I heard that before"?

Recessions always lead to a rise business failures and also lead to more awareness of the insolvency techniques in the media. Frankly many lazy journalists DO need to learn more about insolvency techniques to reduce the erroneous labels they use like "creditors voluntary agreement" instead of company voluntary arrangement, or using "receivership" to mean all things corporate insolvency wise. So hopefully journalists will do some research before attacking all insolvencies as a stitch up.

So, back to my thread! In this little Telegraph article there are many stereotypes, insolvency is dirty, stiffing creditors, banks stitching up creditors, taxman left with big debts. Inevitably more and more media people are going to jump on this bandwagon and sooner or later it will be turnaround and insolvency practitioners who get the blame!

Of course pre-pack administration is going to lead to losses for unsecured creditors, that happens in receiverships, liquidations and administrations every day of the working week. Whats different about a pre-pack and a phoenix out of liquidation?

I think the silent nature of the process until it is essentially completed is the key difference. In pre-packs most of the work is done before the creditors are made aware and presented with a fait accompli. In liquidation or administration, creditors are told there is a formal appointment and that its likely that there recovery will be modest to zero. Thus they are aware of the crisis.

The pre-pack tool is going to come under strenuous examination by HMRC, creditors, journalists and banks in the deepening recession ahead. With insolvency a lagging indicator, if you like, a sharp rise in pre-packs alongside all other insolvencies, will inevitably end in calls for a revamp of the legislation. These should be resisted.

My view is that there needs to be more consistency. At a recent meeting with RBS Specialised Lending Services team I was told, "Mr Steven if you are here to propose a pre-pack administration based upon selling the business assets to the directors then this will be a very short meeting indeed. The bank will not support a pre pack to the incumbent directors". As it happens we were leading a company voluntary arrangement restructuring for our client.

Is it me or is the above article a sign of double standards in the bank's approach?

How come Tru-Est was able to be pre-packed to the same directors by Coutts (a RBS bank)?

With new guidelines for practitioners (statement of insolvency practice or SIP 16) introduced last January the insolvency world is working towards better, more transparent standards. Shouldn't the banks also produce a statement of practice saying one way or the other whether pre-packs to the existing directors are to be banned or allowed?

Friday, 3 April 2009

KSA Group - Current Turnarounds and Rescues

KSA Group - Current Turnarounds and Rescues:



News of some successful rescues from the last few weeks; its been a busy period for KSA since before late 2008. Over the last 3 months we have been working on 36 clients across the UK, here is a sample of the type of clients we have been advising.


  • Data storage design and consultancy, sales of £2m - CVA (see here for testimonial from the MD) 45p in £1 for unsecured creditors

  • Screen media - installation, bespoke software management systems for online content management of adverts sales of £1.4m - CVA 67p in £1 for unsecured

  • Social housing building and maintenance, sales of £11m - CVA 51p in £1

  • Drinks distributor £800k sales - CVA 34p in £1

  • Mechanical & electrical contractor, sales £4.5m - CVA 40p in £1

  • Commercial painting and decoration, sales £2m - CVA- 39p in £1

  • Manned guarding , sales £4m - CVA -27p in £1
  • Bathroom products wholesale and retail, £2.2m sales - CVA 40p in £1
  • Commercial printers, sales £8m - CVA 42p in £1
  • Solicitors and estate agents, £3.5m. CVA - first CVA for a LLP in the UK
  • 2 Estate Agencies - CVA's both unfortunately followed by liquidation as sales post CVA fell even further than planned
  • Small accountancy practice, sales £300k - CVA paying 31p in £1
  • Motor dealerships, sales £80m. Informal restructuring advice followed by Administration
  • Cranes and plant & equipment inspection, sales £400k. CVA 33p in £1
  • Hardware and Software distribution, sales £4.5m - CVA paying 100p in £1 in 3 years
  • USA listed UK trading plc, sales £10m - group CVA's paying 25p in £1. Nearly 6,000 US shareholders and £20m of debts






As a professional advisor if you have any similar clients who need to take action to restructure their company, why don't you call one of KSA Group's experts to discuss?




  • Keith Steven (London and South East) on 07974 086779;

  • Iain Campbell (North) on 0771 7860704;

  • Hugh Gabriel (South West) on 0777 3965386;

  • Paul McNulty (East England and East Midlands) on 0785 3828602

  • Gordon Boden (West Midlands) on 07974 948804

G20, Success or failure? More troubles ahead!

Hot air, or practical steps to free up global credit markets? I don't know is the answer and neither do the leaders it seems to me.

Market led economies are dynamic beasts, the tensions between investors or speculators winning and losing will always pull markets, stocks, shares, gilts, commodities in directions that are completely beyond the control of politicians. For example look at the oil price over the last 3 years.

I suspect that the recession will not end any sooner because of the communiques issued this week and that there are many more big failures of banks, investment houses, hedge funds and advisory firms ahead. We simply do not know what their assets are worth when markets remain largely closed, time till tell what the true write downs will be. The quicker these losses are admitted and dealt with the sooner the recession will end.

What will be really interesting is when the litigation activity starts to gather momentum; witness the $1bn writs issued against KPMG this week in the US. Could we see auditors taken to task for spectacular negligence claims. Remember Enron? Well there was once a large, world wide professional services firm called Arthur Anderson, it disappeared for ever after the Enron fiasco.

Could KPMG, PWC, Deloitte and Ernst & Young survive an Enron type attack? Will the ratings companies be able to avoid litigation from the investors who relied on their AAA ratings of what amounted to "trailer-trash mortgages"?

Time will tell.
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