Insolvency fees rise but the number of insolvencies drop

Hart Shaw Business Recovery is reminding SMEs that revised fees for bankruptcies and company insolvencies will come into force on 16 November 2015.

Fees and charges are reviewed annually and the revised fee structure ensures that the cost of insolvency processes is paid for by those who use them.

The company winding up deposit – which needs to be paid to the Department of Enterprise, Trade and Investment – is set to rise by eight per cent to £1,350, whilst the company winding up administration fee will climb by five per cent to £2,520.

Christopher Brown, Business Recovery & Insolvency Partner, at Hart Shaw, a founder member firm of the UK200 Group said: “These changes will be subject to Parliamentary scrutiny, but the rise in fees is disappointing for SMEs. However, it is promising to learn that according to the latest figures from the Insolvency Service, there has been a fall in the number of company insolvencies in England and Wales over the last quarter.

“Some 3,539 companies entered insolvency in Q3 2015; a drop of more than ten per cent compared to Q3 2014. The decrease in compulsory liquidations mark a drop to the lowest level since 1989. In fact, the estimated liquidation rate in the 12 months ending Q3 2015 was less than half of one per cent of active companies, which is the lowest level since comparable records began in 1984.

“However, if you’re an SME owner that is worried about bankruptcy, insolvency and the associated fees, talk to an expert.”

Hart Shaw Business Recovery has a team of professionals that can assist in this area. To find out more, please contact Christopher Brown on 0114 251 8850 or chris.brown@hartshaw.co.uk.

 

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No business is immune from failure

The recent insolvency of the Rotherham based MTL Group is a timely reminder that no company, however large and high profile, is immune from failure. Administrators were appointed to MTL Group on 2 February 2015 with the immediate loss of 157 jobs and leaving creditors owed circa £10m.

The immediate effect of any insolvency is that creditors suddenly have a bad debt to deal with, and the larger the debt, the more likely that there will be a domino effect, causing otherwise solvent companies to have cash flow problems which could ultimately lead to failure. When the initial insolvency involves such a high profile company as MTL Group the risk of the domino effect only increases.

We are currently helping one of the creditors of MTL who has a large bad debt. Fortunately this company is financially sound but even so, the disruption to its immediate cash flow caused by MTL is such that we are currently negotiating with HM Revenue & Customs a time to pay arrangement for the current VAT Quarter. This will enable the Company to avoid penalties and make nominal payments until, over the next six months, it can claim VAT Bad Debt relief on the MTL debt and so satisfy the current VAT quarter.

Other Companies in less financial health may need to negotiate with their creditors generally and this is where an Insolvency Practitioner can provide valuable help. Of course this is dealing with the effects of a bad debt after it has happened. But what practical things can a Company do to lessen the effects of a bad debt before it happens?

The first thing is to know your customer, assess their credit worthiness and set a credit limit which reflects the commercial risk you are prepared to take, because were your customer to fail that is how much you stand to lose.  Once set, stick to it. We often see cases where although a credit limit was in place, the company has ignored it and gone on supplying the customer which has ultimately failed. If possible incorporate a personal guarantee into your credit application form, it may not always be possible, especially with larger customers, but it is worth trying. Finally consider credit insurance to protect against non-payment should a customer fail. The benefits of credit insurance are not only that the debt being insured would be paid, but that you will have access to improved credit intelligence on your customers.

If your require any assistance in dealing with your creditors or require further information about credit insurance please contact Christopher Brown, Business Recovery & Insolvency Partner at Hart Shaw on T: 0114 251 8850 or email: chris.brown@hartshaw.co.uk.

Christopher Brown, Business Recovery & Insolvency Partner at Hart Shaw

 

 

 

 

 

 

 

 

 

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Protect your business from failing customers

Although insolvency statistics for the first six months of 2012 show that the total number of companies being placed into liquidation, administration or entering voluntary arrangements remained static when compared to the same period of 2011, it has been estimated that 8% of UK businesses – some 146,000 businesses and companies – are teetering on the edge, neither failing nor thriving. 

These are businesses which may struggling to pay their debts as and when they fall due, or are having to negotiate payment terms with suppliers or are just able to pay the interest on their debts but not reduce the debt itself.  The danger for these businesses is that without any positive upturn in the economy soon, any change in circumstances – such as a large bad debt, loss of an important customer or a rise in interest rates –  may mean that they are unable to continue trading.

For these businesses, being proactive and taking professional advice before it is too late can often result in the business surviving rather than failing. Of all the companies that I have advised and acted for in the last twelve months, in 70% of the cases I was able to help save the business. Of the 30% which could not be saved, there was often a reason why, such as retirement, disputes between directors or there no longer being a viable business.

So many businesses teetering on the edge is of course a potential risk to those companies and businesses that trade with them and give them credit. If you are trading with one of these businesses you are unlikely to know until it is too late. So what practical things can you do to limit this risk?

Know Your Customer

• Look at their accounts, carry out a credit check and understand what they do. Set a credit limit that you are comfortable with and stick to it – as ultimately that is what you will lose if their business fails and they don’t pay you.

Retention of Title

• If you supply goods rather than services, consider incorporating a Retention of Title Clause into your terms and conditions so that you can recover your goods if payment is not made.

Personal Guarantees

• Consider incorporating a personal guarantee into your credit application form and ensure it is signed by a director if you are trading with a limited company. This is something that more companies are doing. If you have a personal guarantee, be proactive. Use the threat of it to get paid by the company before it fails rather than waiting until after liquidation when the director may not have the funds to pay.

Be Persistent

• Devise a credit control system that works for your business and be consistent in operating it. Keep pressure on your debtors for payment within your terms of business. In the run up to a company or business failing, payment is often made to those who “shout the loudest”. So make you that you are the one who is doing the “shouting”!

For confidential and expert advice please contact Christopher Brown, Business Recovery & Insolvency Partner at Hart Shaw on T: 0114 251 8850 or email: chris.brown@hartshaw.co.uk.

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146,000 ‘zombie businesses’ teetering on the edge

As the UK welcomes the London 2012 Olympic Games, 8% of UK businesses say that they are only able to pay the interest on their debts, but not reduce the debt itself. This equates to 146,000 ‘zombie businesses’ – according to research by R3, the insolvency trade body. 

R3 measured four ‘zombie indicators’, any of which could indicate that businesses are nearing the point of insolvency, but are still able to hang on, neither failing nor thriving.

These ‘zombie’ signs are:

• Just being able to pay the interest on debts, but not reduce the debt itself;
• In the event of a rise in interest rates, the business will be unable to pay its debt at all;
• Struggling to pay debts when they fall due;
• Having to negotiate payment terms with suppliers.

Lee Manning, R3 President, comments:

“146,000 businesses in the UK are only able to pay the interest on their debts but not reduce the debt itself – this is a staggering number. The implication here is that these businesses have been ‘running on empty’ for quite some time now and with no reserves left in the tank, they may not be able to carry on for much longer.

“Essentially, a zombie business is one that is on the edge of insolvency but has been holding on, often for a prolonged period of time. An insolvent business is one that is unable to pay its debts when they fall due, or a business that has debts greater than the value of its assets. The danger for businesses that are teetering on the edge is that any change of circumstances, such as a rise in interest rates, the loss of a major customer, or suppliers upping their prices, will mean that they will not be able to hang on any longer.”

The retail sector featured most prominently across three out of the four zombie business indicators. It has the highest proportion of businesses that will be unable to pay their debts in the event of a rise in interest rates – 18%, which equates to 31,000 businesses. However, the construction sector has the largest proportion of businesses that are only able to pay the interest on their debts – 16%, which equates to 37,000 businesses.

Lee Manning comments:

“Devastation on the high street is well recorded. Since the start of 2011, over 21,000 jobs have been lost from the failures of major high street names, but we are yet to see the volume of construction failures that we would expect.

“With many capital expenditure projects coming to an end, cuts in public sector budgets and work from the Olympics having recently dried up, we can expect to see some of these businesses fail. Construction may well be the next big casualty from this recession.”

Andrew Maybery & Christopher Brown of Hart Shaw LLP are members of the R3 Association of Business Recovery Professionals.

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