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Tuesday, 27 April 2010

Reg Flag reports 160,000 Distressed Companies

Having seen corporate insolvencies fall in the last two quarters, it is perhaps surprising, to some people, to read the above statistic from Red Flag.

It is not however surprising to those in the insolvency world. Actual insolvency appointments may be down but the demand for advice and solutions is rising. With the Government continuing to support hundreds of thousands of distressed companies through the HMRC Time To Pay scheme, it is inevitable that Red Flag (funded by Begbies Traynor) is highlighting distress.

The number of firms experiencing significant financial problems has jumped by 20,074 (14%), to 161,601 in the first three months of this year.

Begbies Traynor estimates that seven per cent of the increase is the result of trade creditors becoming more aggressive, with an increase in court actions evidence of their growing willingness to take action against their debtors. The remainder of the increase could be attributed to normal seasonal uplift.

The survey shows that distressed UK businesses owe over £55bn to creditors, suppliers and service providers putting them at a severe risk of defaulting. I wonder if this includes HMRC?

The Solutions?

For struggling viable companies the best solution is often company voluntary arrangement. The really frustrating thing we have to put up with in our world is, the vast majority of insolvency practitioners don't agree with that last sentence!

If you are an accountant or professional advisor to a struggling company, we suggest that the directors are at least TOLD about CVA's and the option openly discussed. If the company is introduced to an insolvency practitioner (IP’s), the chances are he or she will ignore company voluntary arrangement as a good solution.

Directors of insolvent companies have a duty to maximise creditors interest, so NOT considering a CVA is a clear breach of that duty, notwithstanding the IP’s own duty to consider all options!

Of course those other options include:

Trading Out
Administration and Pre-Pack

Voluntary Liquidation

To get a view on each option needs a couple of (FREE) hours with one of our managers or directors.

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