Banks; Friend, or Foe to SME's?

Having read over the weekend of yet another breaking banking scandal is it not about time these disgraceful fat-cats were seriously taken to task? As a company turnaround consultant I come into contact with the shameful banking practices on a frequent basis. This latest ‘revelation’ headlining the newspapers is not news to those of us in the insolvency business as there have been suspicions for years around the insolvency practices and banks. A lot has to do with the banking culture itself which has become more and more arrogant and remote from its original purpose – to lend and provide services to its customers.

Successive governments have had far too close a relationship with the banking heads. The most notoriously bad banking and political relationship was of course between Fred Goodwin, ex RBS boss and Gordon Brown, who has arguably been deemed "the worst chancellor ever".

Gordon Brown appointed Goodwin of all people to advise on the regulatory aspects of banking and sale practices and duly gave good old Fred a knighthood in gratitude. The appointment of Goodwin advising Gordon on banking regulation was not so much the blind leading the blind, as the equivalent of King Herod being asked to advise Mothercare on the latest range of comforters. It should not, therefore, come as any surprise that on top of the rate swap mis-selling debacle we now have this latest, equally shameful list of accusations against RBS of stealing property at an undervalue.

We come into contact with situations like this through our line of work and one example could be a recent case where a director was sold ‘insurance’ to cover his company against rising interest rates until, you guessed it, the interest rates fell and his cash-flow was destroyed. This was an interest rate swap product and even though he complained, he got nowhere with the bank and eventually the company went into default with his mortgage payments – the actual mortgage he had ‘insured’ and trying to protect.

The director had secured a RICS valuation for over £2m and yet, just one year later when the company, now starved of cash due to the horrendous interest rate payments he was paying to the bank, was forced into company liquidation. The bank appointed liquidators then sold the property off at a value of £800,000 knowing that my client had personal guarantees in place further protecting the bank. He not only lost his business but also his wife, having long suffered the pressures of supporting a stressed husband, she had finally had enough. He also lost his children and immediate access to those that made his life worthwhile. All this because greedy individuals looked after their own interests first and believed they had the right to do what they could with no thought that they may be doing wrong. But these ‘scams’ do not only involve bankers, they drag in the associated large insolvency practitioners who sit on the banking ‘panels’ as they may have too cosy a relationship with the banks. This may be another area for investigation by Vince Cable who appears to me to be one of the few politicians with any sense of integrity. 

Of course the newspapers rightly focus on the lost businesses and the hardship that this causes, but what it also does is knock our confidence in the established banks and the establishment itself to an extent. It is hardly surprising why banks are so despised; try getting a commercial loan, or worse a mortgage and the banks get tighten-up. Any mortgage applicant is treated like a criminal as they have the audacity to dare borrow money to improve their lot. 

Of course this would be funny if there wasn’t a more serious side to it and the serious side is the human fall-out of the pressure that these scandalous banking practices bring about. The fact that the Co Op Bank, set up to serve its members has been brought to its knees with £1.5billion gap means pensions will be underfunded and genuine investors will lose money. 

The banks have a lot to answer for and there does not seem to be any end to these banking scandals that have hit every man woman and child in this country and arguably the western world. The bigger question is what do we do to put this right? 

Written by: Mike Smith

Do insolvency practitioners do turnaround?

I read a very interesting article recently highlighting this question and it may seem an odd question to ask, but do insolvency practitioners actually rescue companies, or simply put them into liquidation? Put plainly, do insolvency practitioners rescue companies? The question was posed by a well-respected rescue CEO and consultant with over twenty years in rescuing businesses. My experience is, I have to say, not good when answering this question. I have been advising large medium and small companies for over thirty four years now and rescuing a failing business is not for the faint hearted, that’s for sure. So why is the question even being asked? Well I suspect this well respected gentleman has had similar experiences to me over the last five years or so, through the heat of a recession.

Unfortunately, I do believe insolvency practitioners generally have lost the appetite and more importantly lost valuable experience in rescuing companies and have put more focus on more expedient liquidations. In the last year alone we have been contacted by around 2-3,000 company directors seeking business debt advice. The majority of directors that we have advised who had also spoken previously to competing insolvency practitioners were genuinely surprised and greatly relieved when we discussed how we may be able to rescue the company and not simply put it into company liquidation. Now, it is not possible to rescue all companies and I accept there are a lot of so called zombie companies out there, but shouldn’t we at least work from the premise of ‘how do we save this company’ rather than how quickly can we close it?   

Certainly the majority of insolvency practitioners appear driven more by regulatory and compliance matters than saving the company. I guess this is understandable when they are subject to spot checks and can lose their licence if not completing procedures thoroughly enough, but is this the real reason or a symptom of something else?

    

Over the last five years or so, since the recession, we have seen and heard of serious investment in compliance policies and procedures which has turned into an entrenched dogma creating a completely different type of insolvency practitioner to that which existed 7-10 years ago I suspect. There is something else though when you look at the increased numbers of staff. The new kids on the block don’t know anything else other than compliance, regulations and following the necessary processes and many have no first-hand experience of rescuing a company, or negotiating with creditors over business debts.

With the economy improving and the Insolvency Service cutting down in size, it may be that a downturn in insolvent liquidation cases may well be followed by a number of insolvency practitioners starting to struggle and being taken over. It may seem improbable, but there is already evidence in the market place that insolvency practitioners are trying to change their approach as they begin to struggle. The insolvency practitioners that cannot adapt to the changes will struggle to survive in a market where desperate practitioners are already pushing liquidation fees down in an attempt to reel in more business whilst their profit margins get squeezed. A note of caution here; far too many directors do not think to check the website of insolvency practitioners for genuine testimonials, or ask to speak with the insolvency practitioners' past clients. This should always be the first action that any company director should take who is thinking of engaging, or referring an insolvency practitioner.

The 'big boys' appear to have swallowed up a significant portion of the ‘company rescue’ talent, but not every SME can afford their fees and in any event, these bigger firms of insolvency practitioners will continue to ‘cherry pick’ their clients based on certain prerequisites. The average SME traditionally turns to his/her accountant for help and that is as it should be as the first port of call. Perhaps the SME accountants should check who they refer their clients through to in future more than they previously have when they want a company to be rescued?   

Back to the question: Do I think insolvency practitioners do turnaround? Well, the larger clients will probably be able to afford the big names, but the smaller companies are left to a roll of the dice as to whether someone will genuinely try and turn the business around, or simply put it into company liquidation.

 

There is a simple solution though – check the websites and how about asking to speak to past clients? 

Who takes care of who when a business is insolvent?

When a company becomes insolvent the directors must take great care to fully address their duties and responsibilities; even more so than usual, as they will be watched very closely if they require an insolvency practitioner step in and process an insolvency solution for them.

Why is this? Simply put, as soon as an insolvency practitioner is engaged as a liquidator their main duty is to the creditors not the directors so your personal interests are not looked after by the liquidator once they have been engaged. For example increasing the overdraft within the normal day to day running of the business  would not be an issue, but what happens if matters start to go wrong? You may require personal help during the liquidation process and often afterwards. So who do you turn to if you can't go to the liquidator, surely they are there to advise you? Normally, you would need to engage an external consultant to advise you personally while the liquidator does his/her job. This is not the case with Jameson Smith & Co.

t Jameson Smith & Co we work very closely with you throughout the liquidation process and afterwards if required to help make sure that everything on your side runs smoothly and that you are protected personally as much as is possible. So the liquidator has a duty to the creditors (people your business owes money to) whilst having due care for the  directors and Jameson Smith & Co has a duty to the directors with due-care to the creditors. Who would you rather have on your side? This is not meant as a slight on the liquidator quite the contrary they have a job to do and we find that this brings a far more equitable solution and everyone is tended to and taken care of.

Travelodge in Trouble Once More?

Debt ridden hotel chain Travelodge is having some difficulties with its creditors as they feel that the rescue plan is not as they would like.

The British Property Federation has called for a review of the company voluntary arrangement that has been put forward by the insolvency practitioners that have been engaged by the hotel firm.

At least 109 of the total hotels within the chain have been deemed as viable.

The Travelodge has around £1 billion worth of both secured and unsecured debts, however, they saw a 20% rise in profits last year creep towards £55 million. This shows promise in these challenging times for hotel chains so there could be promise for the Travelodge.

Talks are going on at the moment between KPMG, the insolvency practitioners who have been engaged by the Travelodge and the creditors to find some sort of middle ground for the company voluntary arrangement otherwise know as a CVA.

Retail Sector Insolvencies on the Rise

The number of retail sector failures has risen by more than a third recently.

Around 670 retailers went bust during the first quarter of 201 which is a 38% rise against the 486 that became insolvent during the last quarter of 2011.

This is a 3% increase on the number if businesses that failed during the same period last year, confirming that this year is in fact worse for insolvency figures.

The retail sector has been struggling to get back on its feet since the first recession that began in 2008. Since this period the UK has slipped back into a double-dip-recession and has forced many business to consider voluntary insolvency solutions such as liquidation or company voluntary arrangements.

Many are blaming the double-dip-recession for pulling the retail sector back down into insolvency.

Jameson Smith & Co help UK directors to get out of tricky insolvency situations. We speak with directors every day so get in touch if you need help with your company.

You can get in touch on 08000 746 757 or use our live chat facility at the top of the page.

Insolvency & Rescue Awards 2012

This years Insolvency & Rescue Awards are coming to us this October!

Last year many insolvency practitioners turned up hoping to be selected and walk away with an award in-hand. Some great insolvency practitioners won some great awards.

The Insolvency & Rescue Awards celebrates the achievements of firms and individuals in a challenging sector.

To read more about the Insolvency & Rescue Awards 2012 visit the website at www.insolvencyandrescueawards.co.uk

No Buyer as Yet for Clinton Cards...

Over 40 Clinton Cards stores have closed down by the administrators this month. The 43 stores that were closed were part of the 330 store that were not included in the deal confirmed on the 7th June.

Among the stores that have closed are the sites that include Basildon Town Square, the Galleries shopping centre in Bristol, the Glades shopping centre in Bromley, the Liberty II shopping centre in Romford and Wrexham's Regent Street branch.

A representative at the insolvency practitioners that have been appointed as administrators feels that there is a strong underlying business within Clinton Cards despite the current economic conditions.

Jacobs Cameras Closing Some Stores to Become More Attractive to Potential Buyers

PFF Accountants are managing the administration of Cecil Jacobs and they have confirmed that they are to close several stores in some key areas to help make the business more attractive to potential buyers. some of the areas in which the stores are closing are Birmingham, London, Derby, Hull, Kingston-Upon-Thames, Liverpool and Sheffield.

Around 46 staff are unfortunately heading for redundancy due to the insolvency proceedings, however, this is considered necessary according to the insolvency practitioners if the business is to be sold.

A representative at the insolvency practitioners firm said "These measures are painful for everyone involved, but they are essential if we are to have a reasonable prospect of finding a buyer for the business as a going concern - although we recognise that there are likely to be more challenges ahead".

The camera company has already had a number of potential acquirers who have expressed their interest and are now in a position to start negotiating. It looks likely that Cecil Jacobs is set to avoid liquidation if it can help it.

How Insolvency Practitioners Can Help

An insolvency practitioner is necessary if you have a business that is struggling financially and you need to either liquidate it or find some way of helping it to trade on through some sort of statutory payment structure like a company voluntary arrangement.

Generally, directors will visit their accountant as their first port of call when the warning signs are apparent. Normally the accountant will admit that the advice required is outside of their area of expertise and they will automatically refer the client through to a local insolvency practitioner.

In most cases this can be the last thing that the director actually wants without even knowing it. The problem arises when the director seeks advice on how to handle the commercial or personal implications of an insolvency solution such as liquidation or a company voluntary arrangement.

Once engaged, an insolvency practitioner acts in the best interests of the creditors (people/businesses that the director's company owes money to). Naturally, the director may feel like he is getting a raw deal here as what he really wanted is someone to help him personally get out of this sticky situation with minimal complications or implication to them directly.

Unfortunately, insolvency often brings with it all manner of areas that need addressing properly and carefully and while the insolvency practitioner will make sure that the creditors interests are looked after and everything is done as it should, the director may be left feeling a bit lonely and vulnerable as they have no one guiding and protecting them personally throughout the entire process.

Director protection is where we come in. We work closely with the insolvency practitioners and the directors to make sure that successful communication between both parties and congruency is at the forefront of our work.

Creditors can sometimes get a bit aggressive and in some cases they may have good reason as they may be owed a great deal of money and directors may have neglected communication, possibly through fear of what the creditors may say. The insolvency practitioners will not be looking to step in between the directors and the creditors and Jameson Smith & Co effectively act as a barrier between the directors and the creditors controlling all communication between the two sides.

While we protect the directors it leaves the insolvency practitioners to process the insolvency documents and court procedures, communicating with us all the time so we manage the situation from start to finish.