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The University of Manchester
Observers noted that the threat of a university going into administration is now so high that the government is appointing someone to brief ministers not only on how insolvency arrangements work but also now to shape potential intervention if institutions are at risk of closure.
 
The postholder would be working on: “the increasingly important and high-profile policy area of the financial sustainability of Higher Education (HE) providers.
 
“There is a considerable range of income and cost pressures and risks facing the HE provider sector currently and over the coming years.
 
“The Office for Students (OfS) has responsibilities in the new HE regulatory regime for monitoring HE financial sustainability and for protecting students’ interests against risks such as course, campus or provider closure.
 
“We are also seeking to develop our own comprehensive understanding of HE provider financial sustainability issues. This will enable us to ensure the Department’s policy development takes into account potential financial sustainability implications, and to advise Ministers accordingly.”
 
The OfS was created by the 2017 Higher Education and Research Act amongst other things to monitor sector and institutional financial health and this role is to address any perceived gap specifically “understanding the OfS approach to its functions...as well as considering whether the department’s concerns about risks might vary from the regulator’s”.
 
Tellingly the role will also include: “developing the departmental policy position in relation to potential intervention in the face of the risk of provider financial failure (where OfS as regulator is the primary actor)”.
 
Since 2017 however the financial position for many institutions deteriorated with the government’s decision to abolish the student numbers cap cited as one key factor.  
 
The Times Educational Supplement (TES) recently reported that 47 UK HE institutions, more than a quarter, posted a deficit in 2017-18, up from 40 the year before and 24 in the year before that. Even Cambridge University will post a £30 million deficit this year.
 
University deficit
 
The law that set up the OfS and was to open up the sector to new providers has also created a regime that would allow a university to “exit the market” or go bust in plain English.
 
Sir Michael Barber, head of the OfS, has already told universities that there will be no bailouts and they must not think they are “too big to fail” as banks did during the financial crisis. Ministers have also said that they will judge particularly harshly universities that have borrowed to expand on projected growth of student numbers that may never materialise.
 
The financial outlook for universities and other HE institutions is uncertain for several reasons.
 
The number of school leavers is falling, there are risks around Brexit and research money and grants coming from EU institutions. The government review on tuition fees could also lead to sharp falls in income.
 
Nick Hillman, director of the Higher Education Policy Institute, was in favour of the creation of a position and having expert advice on financial realities so close to policy makers and regulators.
 
“The department needs expertise in insolvency, mergers, buyouts, transferring students and so on. A single policy advisor is unlikely to be enough, after all, if any significant provider does go under, it may be partly a result of government policy so it’s right government plays a role.”
 
Hillman has previously warned of a consensus that too many institutions are borrowing too much and that there are unprecedented levels of uncertainty. He continued: “Oxford, Cambridge and some other universities will always be fine but others will be facing a genuine credit crunch in 2019”.  
 
If you were still interested in applying for the position of Policy Expert, we’ve got some more bad news for you. Applications have now closed.
You don't need a double first to know the best people to speak to for insolvency or business rescue advice - us!

high street closure
Research from the Local Data Company (LDC) showed that a net total of 2,481 stores closed their doors in 2018, up more than 40% on the previous year’s figures and the first time the deficit has been above 2,400.
 
While 3,372 shops opened; 5,833 closed which is a ratio of 9 openings to 16 closures a day. A similar number of stores closed last year but fewer have opened to replace them.
 
A team member who worked with LDC on the survey said: “We saw an acceleration in footfall decline on the high street, with businesses continuing to see the impact of online shopping, increasing costs and subdued consumer spending.
 
“The marked reduction in openings has accelerated the net closure trend. In categories as diverse as fashion and financial services, new entrants are able to gain share by launching online - enabled by technology and consumer adoption of mobile and e-commerce - rather than be saddled with the costs and risks of opening on the high street.”
 
Banks and financial services underwent the biggest net closures as Lloyds, HSBC, RBS and others closed hundreds of branches across the country. Fashion retailers also suffered as East, Blue Inc and Jacques Vert closed down along with mass store closures by New Look.
 
No hoverboards?
 
“The high street of the future will be a more diverse space, not solely dependent on stores.
 
The analysis reflects this with the net growth of gyms and sports clubs, ice cream parlours and cake shops, in addition to initiatives to bring more shared office spaces and homes into what were traditionally shopping areas.
 
“However, it’s clear that the rate of openings is not currently enough to offset the closure of traditional retailers and services, so some tough decisions will need to be taken in the next few years.”
 
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Only 15 out of 100 business types showed a net growth in outlet openings and of these only five (above) showed a net growth in double digits.  Previous growth areas such as coffee shops, takeaway food, jewellers and beauty shops all saw declines last year.
 
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Nearly every region of the UK saw increased net closures in 2018 apart from Scotland which had 29 less than the previous year. Greater London saw the greatest volume of net closures with 528 and Wales saw the least overall with 59.
 
Lucy Stainton, Head of Retail and Strategic Partnerships at The Local Data Company, said: “Bricks and mortar has a strong future - but not as we know it. Stores and shopping destinations will continue evolving to better serve consumer demand, integrating as part of an online channel.”
 
Not every store will follow this pattern. There are still some smart and prudent decisions you can take to make efficiencies and keep your business alive so it can thrive again.
 
Contact one of our expert team to arrange a free consultation where we can advise you on what options you have right now to help avoid your business becoming just another statistic.

windup

Who can issue a winding up petition?

 
A WUP can be issued directly by any creditor that is owed money. Multiple creditors can petition for a WUP to be issued and HMRC can also issue one for owed tax arrears.
 
In the initial stages, a creditor is likely to attempt to recover any outstanding debt by using all  other legal methods before resorting to issuing a WUP. It is still very much a last resort but if a company is unable to settle any outstanding debt in full within a period specified by the creditor and the sum is more than £750, then the creditor can instruct a solicitor to draw up a WUP.
 
£750 seems a small amount to force a company into liquidation and the costs involved of issuing a WUP would raise this amount considerably - the court fees alone are currently £1,880 not including solicitor’s fees.
 
It’s unlikely a creditor would issue one for that amount or similar but be aware that this is the minimum threshold so if the amount owed is greater then there is always the possibility of issue.
 

Why would a creditor issue a winding up petition?

 
There are several reasons why a creditor would seek to issue a WUP. They may have exhausted all other avenues to recover the amount owed, they may have lost patience with the process, they may have no faith that any repayment will be made or they may wish to force an investigation by insolvency practitioners into how the company got into this situation in the first place including looking at the behaviour and actions of directors.
 
What are the stages leading to a WUP being issued?
 
There are several late payment collection methods available seeking a WUP option and it is always encouraged that these be exhausted first.
 
Any company that fails to make payments and doesn’t maintain a dialogue with creditors may force them to take more formal recovery action than simply asking for their money.  
 
The first stage in the process would be a written request from the creditor in the form of a statutory demand, detailing the debt and asking for a repayment schedule to be arranged. The debtor now has received written notice and more significantly, a chance to pay the debt before any more action is instigated.
 
This isn’t an open-ended action however, the debtor has only 18 days from being served with a statutory demand to dispute the balance due and if they don’t, then action can be escalated to a winding up petition after 21 days have elapsed.
 
Other options for creditors
 
If the WUP is the nuclear option for a creditor then what other methods of recourse do they have to recover a debt?
 

The creditor may choose to file a County Court Summons. This gives the debtor the opportunity to make a full repayment of the debt or more usually negotiate a scheduled repayment plan.  
 
This is also time-limited and if the debtor does not respond then the court will issue a County Court Judgement (CCJ) which will remain active on the company’s credit record for a minimum of six years and will make it harder for them to obtain credit and it will be visible to any public search of records for this period.
 

A creditor can also ask a court to issue a Notice of Enforcement. This can take the form of a Charging Order on a business premises, a Bailiff Warrant of Control or a High Court Enforcement Officer’s Writ of Control. It is important to note that the HMRC can offer Notices of Enforcement without having to obtain a court order.  
 
This a formal document from a creditor to a debtor warning that they are preparing to take action to recover owed money, usually within seven working days. If the debt remains unsettled after this time period or no arrangements have been made to settle then the creditor can apply for a Controlled Goods Agreement (CGA).
 

 
Previously known as a Walking Possession Agreement, the CGA identifies goods that can be taken from a debtor’s premises to be sold to settle the debt. If a debtor signs this agreement then they will gain an additional seven days to repay the debts in full.
 
If the debtor refuses to sign then the creditor’s agent or a bailiff can arrange for the immediate removal of the goods. They can also be seized at a later date if the debtor has signed the CGA but not cleared the debt within the mandated seven days. The CGA is legally binding and once the director of a debtor company has signed the agreement then it is illegal for any of the goods to be removed.
 

 
As stated earlier, an option for creditors is a statutory demand for payment from the debtor. This is a formal written request that a debt be paid in full or an alternative repayment arrangement agreed. The debtor has 21 days to respond positively once issued.
 
If the debtor fails to respond or doesn’t comply with the terms of the demand then the next step is usually to proceed to issuing a WUP. This is often used as a precursor to a winding up petition as it avoids the costs of issuing and formalises the debt as being due.
 

 
If all the other avenues of repayment have been exhausted then the process of issuing a WUP will begin. The creditor will instruct their solicitor to apply for the WUP which will then be reviewed by the court and if passed, a winding up order will be made against the company.
 
It usually takes up to 4 - 6 weeks for a WUP to be heard in court. Once received there is a seven day window for the debtor to take action and either pay the debt in full or make alternative arrangements such as a Company Voluntary Arrangement (CVA) which will allow the company to escape the threat of liquidation and provide an opportunity to recover.
 
They could also apply to be placed into administration by means of an Administration Order. This will see an Insolvency Practitioner sell company assets to pay off the debt but it will see the halt of all legal action including the WUP.
 
If none of these actions are taken then the WUP will be advertised in the London Gazette where it will be brought to the attention of both the HMRC and lenders including banks. This could result in the debtor company’s bank accounts being frozen in order to safeguard any money in them for the liquidation process.
 
The Official Receiver will be appointed to administer the process by liquidating the company, selling any business assets and beginning an investigation into company directors for signs of misconduct or insolvent trading. All employees are immediately and automatically made redundant on the making of a winding up order as well.
 
A Winding Up Petition is something to be taken seriously.
 
If you have received a winding up petition or a statutory demand for payment against your company then time is of the essence. Get professional insolvency advice immediately as a WUP will not just restrict a company’s ability to function but could also have personal liability implications which could negatively impact your future life and career prospects.
Contact a member of the Business Rescue Expert team today for a free initial conversation on how they can help your business remain viable or for ways to navigate any complex and confusing demands for repayment.

mythbusters
 
What is a CVA?
A CVA is just one kind of insolvency arrangement.
In a CVA, an insolvent company enters into a brokered agreement with its creditors to suspend all repayments and restructure the debt in such a way that allows the company to survive, make a profit and pay off as much debt as it can reasonably afford over a specified period of time.
 
 
“CVA’s are really expensive and not worth the money”
“You can pay up to £25,000 for a CVA and it doesn’t even get rid of your debts!”
“They start charging you from the first meeting and the fees just keep going up”
 
If you decide to pursue a CVA solution then it can cost between £3,000 and £10,000 but this depends on the size of your business, how many businesses you owe money to and how much.
We offer a free, no obligation online quote for any business and are always transparent and up-front about any costs that will be incurred as part of the process so there won’t be any surprises.
 
“A CVA can’t stop bailiffs coming round and grabbing your stuff”
 
A CVA offers legal protection from enforcement action once it’s been accepted by your creditors. If bailiff action has already commenced against you or you think it’s about to, we can negotiate with them to hold off until a CVA can be put in place.
 
“A CVA means you only have to pay back 10p in the £ on debts”
 
No. A CVA does not automatically reduce the amount owed. Any company in a CVA must still pay back its debts but only what it can reasonably afford. While being realistic about debts, creditors also expect honesty in financial declarations and won’t appreciate being misinformed about artificially low income estimates to avoid making larger payments.
 
A CVA will dissolve all your previous personal payment guarantees”
 
Not as such. We’ll negotiate with creditors on your behalf and look to reach agreement with those that you have outstanding personal guarantees with. While this might mean no further payment above the CVA contribution, sometimes they may need to be topped-up from personal funds.
 
“All my customers will be told about the CVA and they’ll know I’m in financial trouble”
 
Untrue. We have to contact your creditors and we have to file an official notice of the CVA at Companies House but these are the only notifications we make.
 
“The Insolvency Practitioner looks into all your personal history, not just financial”
 
Nope. In a CVA, your business continues to trade and operate as usual. We don’t carry out any investigations into directors’ and/or their conduct.
 
“My mate is an accountant, she can do the CVA for us and she’s cheaper too.”
 
She might charge less but legally she’s not allowed to. A licensed insolvency practitioner must implement and oversee the CVA process. There are also rules against conflicts of interest such as a practitioner overseeing the CVA for somebody they know.
 
“A CVA is permanent and responsible for zombie companies that only exist to pay off creditors”
 
A CVA agreement usually lasts a maximum of five years but could be longer or less than this depending on the level of debt involved and the amount your company can afford to put into the arrangement.  
The point of a CVA is to let the company run, make a profit and pay off debts. If the company doesn’t make a profit then not even a CVA could keep it from insolvency.
 
“The Insolvency Practitioner takes over your company and runs it - they become the boss!”
 
No thanks, we’re busy enough. Under a CVA arrangement you remain in control of your business. Our role is to review and agree the creditor’s claims, collect your contributions or assets as set out in the proposal then pay the creditors.
We can review the company’s finances at an agreed time interval to see if you’re doing better or worse than thought and change the CVA in accordance with this info
 
“Once the bank knows you’re in a CVA they will demand repayment of your loans and close your bank account and credit cards”
 
Not at all. In fact your day-to-day trading and arrangements don’t change. The CVA payments are an important expense but just another outgoing. You pay the money to use as your CVA supervisor and we distribute that money to your creditors.
You might have less options for raising additional finance and credit but so would any other company with similar financial issues in the current lending climate.
 
“You might make monthly payments but at the end the final payment is thousands as you have to pay off all of the remaining debt in one go”
 
Unlike a car purchase, there is no “balloon” payment waiting for you at the end.
The CVA is brought to a successful conclusion once you have made all the expected payments into the arrangement and we have paid all agreed dividends to your creditors.
Once this has happened then you are issued with a Certificate of Completion, and we prepare a final report on the CVA that is filed at companies house in London.
 
 
We hope we’ve been able to dispel some of the common myths and misconceptions around CVA’s but if you have any questions about any aspect of the process, the costs and your or our responsibilities please contact us and we’ll be happy to talk you through your various options.

pay up
 
The average SME is owed over £6,000 in outstanding payments which, as research from the Federation for Small Businesses found, contributed not only to a slowdown in cash flow, profit growth and a negative impact on the wider UK economy but most critically contributing to a lot of these companies becoming insolvent.  
 
The same research found that some 50,000 SMEs closed in 2014 due to the effects of late payments.
 
Many of these were able to close down through dissolution, however a significant proportion were also forced into formal insolvency procedures. This is particularly the case in the construction industry, with a prevalent culture of contractors paying as little as possible for as much work as possible.
 
Many large firms use their dominant market position to pressurise SMEs into terms like this, forcing them to take the cost of the chin for almost four months.
 
For some SMEs the distance between supply and payment is too much and can actively send them into insolvency.
 
Recent legislation has passed to help solve the problem, including the introduction of late payment interest, a Prompt Payment Code which commits voluntary signatories to pay on time, the introduction of a Small Business Commissioner with powers to “name and shame” organisations found to be late payers and new rules requiring medium and large businesses to publicly report how effective their prompt payment practices are twice a year to the government’s Duty To Report website.
 
Chancellor Philip Hammond specifically addressed the problem in his 2019 Spring Statement when he announced a commitment to take further action to tackle the issue of late payments from large businesses to SMEs. Among the new rules would be a requirement for audit committees to review their company’s payment practices and report on them in annual accounts.
 
We are also still awaiting the outcome of evidence submitted to a government consultation on Creating a Responsible Payment Culture where SMEs were encouraged to report their experiences of payment practices and suggestions for the best way to ensure all companies have responsible payment practices in their supply chains.
 
There is a legal way for SMEs to claim recompense for businesses receiving a late payment as they can legally claim interest and debt recovery costs if another business is late in paying for goods or a service from them.
 
Late payment is officially defined as when a payment has not been made 30 days after either a customer has received an invoice or after the issuer has delivered the goods or provided a service.
 
Statutory interest can be charged on late payments which is 8% plus the Bank of England base rate for business to business transactions.
 
There can also be a fixed debt recovery costs added to the late payment charge which can range from £40 to £100 depending on the amount of debt owed.
 
You can find more details on these amounts and working out and applying interest here.
If your business is owed outstanding funds then we could help.
 
Contact one of our expert team of advisors for an initial chat and we will be able to advise you on any funding options available to you and how to claim back what is legally owed to you too.
Email us at ask@businessrescueexpert.co.uk or use our contact form here.

handshake
Initial Meeting

After getting in touch with Business Rescue Expert and having a brief conversation with one of our team members to discuss your initial thoughts and give us your summary of your situation, we’ll schedule our initial company advice meeting. This conversation is entirely free and can be set up entirely at your convenience.

It can even be the very same day as your initial request, for an online meeting, or we can meet face to face at a convenient time and place to suit you. We require at least one of the company’s directors to be present to explain the financial situation in more detail and answer any queries we may have.

After this, we can give you an initial outline of the various options we believe are available to you and leave you with a list of further information that we need for our follow-up meeting.

The free, more formal follow-up meeting usually happens between one and 14 working days after the initial meeting. The purpose is to review all the information you’ve provided and give our considered opinion on what options are available to your business after examining your structure and supporting evidence in more detail, not just proceeding straight to insolvency and liquidation.


Follow-up Meeting

The face-to-face follow-up meeting we have follows our initial consultation. Although still free, we’ll require more detail about your company, its current position, its obligations and any other information we require to fully assess the situation.

The first thing we need to establish is the identity of all the directors and shareholders of the company and whether they are all in agreement with the chosen course of action. This is not as straightforward as it sounds. Sometimes a director may jump-the-gun and seek our services before securing unanimity from the board which could cause issues further along the line.

Once this has been completed and we can establish it to our satisfaction, we will require documents that prove the legal identification of the attendees.

The next requirements are a set of recent company accounts to give us as complete a picture as possible of the company’s current circumstances and a full list of creditors and amounts owed. As much information given here as possible is beneficial including the total debts owed, who to, when incurred, any personal guarantees given or other information about the circumstance of each liability to help us form a full picture of the situation so it will allow us to give the most pertinent information to you. The more information you provide to us, the better the service we can provide to you.

We will provide a fully itemised quote for our professional services and set out our terms of business for your review. This states clearly what we will and won’t be able to do and answer any questions you may have about the process, roles and requirements moving ahead.  

We discuss how to deal with any company assets, along with other specific matters for your company including leases, contracts and details of any personal guarantees.

From this point we will require you to instruct us to formally act on your behalf. Once our terms have been agreed and signed, we will be fully engaged and able to proceed.

You can read more about the rest of the process including creditors meetings here. Contact a member of the Business Rescue Expert team today and take the first steps in taking charge of your and your business’ destiny again.
Email us at ask@businessrescueexpert.co.uk or use our contact form here.
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Office outlet

An announcement on their website reads: “Richard Michael Hawes and Daniel Francis Butters were appointed Joint Administrators of SUK Retail Limited t/a Office Outlet and SUK Oldco Limited (“the Companies”) on 18 March 2019. The affairs, business and property of the Companies are managed by the Joint Administrators. The Joint Administrators act as agents of the Companies and contract without personal liability.”

The restructure was sparked by a “significant decline in footfall” at out-of-town retail parks and the CVA was an attempt to reduce fixed costs including rent to help ensure long-term profitability. Chief Executive Chris Yates set about negotiating three-year, rent-free deals for 20 stores and it is thought that the looming quarterly rent deadline on March 25 has forced their hand.

You can read more about our thoughts on whether CVAs are effective for large retail companies here. There may well be interest in their smaller stores and prime locations from other buyers but it is a worrying time for staff learning the news today.

Sunday Times Business Editor Oliver Shah identifies an issue with large companies entering into a CVA. He says: “CVAs are increasingly unpopular with commercial landlords, who often complain that retailers are asking them to swallow rent cuts without producing coherent turnaround plans or putting in cash of their own.

“CVAs tend to delay the inevitable: Of the 12 carried out in the decade after 2008, only two resulted in survival, according to property agency Colliers, with Office Outlet being only the latest example.”

Do you work for Office Outlet or are a supplier? Are you worried about the administration process and what could happen next?

Contact us for a free chat today to discuss your options and see how we can help you plan your next move.

early warning system
But what are the signs?

Every business has ups and downs but in our experience there are some common, unmistakable warnings that, taken together, can indicate that a business is off course and heading for rocks:

Some financial records are more informative than others. A healthy understanding of profit and loss is essential but there are several other indicators of businesses health that you need to be equally adept at interpreting.
Cash flow forecasts and figures, sales forecasts, debtor reports and bank reconciliations will give you a broader understanding of where your business is and where it could be going in the coming days, weeks and months.
As a director, you need to be able to access this up-to-date information, whenever you need to if you are able to make business decisions with full confidence. Without a clear view of what you owe and are owed, you may be blinded to any unforeseen consequences of your choices. For instance, if you offered over-generous flexible payment terms to secure a new contract, this could end up working against you if you then discovered you need quicker payment.

Reaching the credit limit in any account can happen, that’s why they have them, but if it happens regularly and/or with more than one account then it’s another warning signal.
Other factors could include being refused extensions to credit limits or extra credit and lenders requiring personal guarantees for finance or charges on assets. All of these could be additional signs of trouble, especially if you don’t have assets which can be used against loans.

Constantly being chased for payment isn’t a good look for any business. If you receive a Statutory Demand from a creditor because of unpaid bills, then you could be liable to face a winding-up petition if this demand can’t be settled.
This would put a company in significant danger of closure. Also once instructed to pay by way of a formal court order, there could be substantial late payment fees added to the amount making the situation worse still.

As we’ve discussed, businesses can go through peaks and troughs and you may occasionally have a customer or client who pays late or misses a payment schedule entirely. While none of these occurrences are your fault, they can become a problem for your business.
If you aren’t being paid, then you won’t be able to make your own payments. We’ve covered this previously in a post about how to manage cash flow when clients pay late which gives some tips on what to do to recoup these amounts.

Why get advice?

Being a Director isn’t just a great job with a fancy title, a parking space and a bigger paypacket - it involves statutory responsibilities for you to execute on behalf of staff, creditors and shareholders.
If you’re seeing any of these individual issues occur regularly or altogether then it might be a good time to get some professional advice. Any one of these could be due to any internal or external factor such as inefficient business functions, staff absence or mistakes or they could be symptoms of a wider weakness within the business as a whole.  
Business Rescue Expert are an experienced, qualified team who are on hand to help determine the root cause of your business issues and can provide you with the help, advice and solutions to diagnose and fix the problems and help you keep your business lively and alive.

Insolvency is never a certainty. The earlier the possibility is acknowledged, the more options and alternatives are available for you to explore and implement to avert the eventuality.

If a business is at risk of insolvency then the simplest way to alleviate that pressure is to increase incoming cash. Like blood in the human body, cash flow is the circulation that keeps a the heart of a business beating strongly. The stronger the flow, the more resistant to external problems and pressures.
Some simple tweaks to regular business operations can improve things. Processing invoices and payments when they occur rather than waiting until the end of the month; staying on top of debts owed to you and collecting frequently; not allowing excess stock to build up and keeping an accurate forecast of all cash flow based on existing in and out payments to ensure that every decision is evidence based on existing circumstances.

A petty cash box is one thing but regular business expenditure is another. Develop a system and discipline of logging each and every purchase so you can clearly see if there are any regular and unnecessary costs that aren’t benefiting the business. These can include membership and licence fees for services you no longer use. Studying them can give you an insight into where efficiencies and savings can be made.
Even small reductions in expenditure can add up to a big impact over time, especially if they are implemented company-wide.

Banks are only one option when it comes to business financing. Depending on your situation and asset base, there are other choices including factoring agreements to help you secure payments.
For example, this option will help you maintain a cash flow by sacrificing a small percentage of your costs to obtain it. This must be preferable to incurring further debt with lenders or existing creditors.

Maintaining a regular dialogue with creditors is essential in straitened financial times. One of the biggest and avoidable mistakes is to close down communication with creditors in difficult times. You might save face and pride but you will raise red flags on their behalf, exhaust any goodwill and the benefit of the doubt and make it more likely that they will resort to formal legal methods to obtain their owed debts.
Creditors will appreciate knowing in advance if your payment is going to be late and will be more likely to work with you and negotiate on payment dates and terms if you give advance notice and a clear indication of when and how you’ll be able to clear any debts. After all, they’re in business too and understand fluctuations in fortune and circumstances.
Building and maintaining a good relationship with creditors is essential in reducing the risks of insolvency especially when a winding-up petition can be brought against a company owing as little as £750.

Despite taking the proper decisions and right actions, sometimes it’s not enough and a business will become insolvent. There are still actions that a director has to reasonably take and will help them personally and professionally in the long run as the process follows its due course.
Here are some steps to help maintain your reputation and fulfill your legal duties to help insolvency practitioners work through their tasks efficiently and easily:

Honesty is always the best policy, especially when it comes to dealing with creditors. Letting them know the situation and that you will do your utmost to secure their funds will do a lot to cementing goodwill and building trust with them.  Depending on how the situation unfolds, you may need to rely on the better angels of their nature and having a good relationship with them in advance is one less variable to complicate matters.

Keeping up-to-date, clear financial and business records should be a standard business practice but is utterly essential in any insolvency situation.  Records of meetings, available information and decisions made on that basis will allow insolvency practitioners to understand the timescale of what happened, when, where and why and prove that you did your best to monitor issues and implement correct solutions wherever possible.

If you already have excess debt then it can be tempting to assume that taking on a little more at this stage won’t make any difference, especially if it allows you to make one more payment and buy a little time so that things might turn around.  
Don’t. The more debt you accrue means the more you will have to pay back later and your business has already reached the end of the line. Taking on more funds now not only won’t help but could cause legal issues when you’re unable to pay and investigators look into the circumstances surrounding the new debt.

The business assets you own and control are your most important advantages now and have to be protected and insured correctly. They can be presented as a means of payment to creditors if they are willing to accept them and will help your case.
Do not be tempted to sell these assets to gain additional funds as investigators usually consider this wilful misconduct at best.

Events might seem stressful and overwhelming but this is because you are not used to insolvency. The experienced team at Business Rescue Expert have been through hundreds of processes and will have dealt with every eventuality and circumstance you can imagine, and more you can’t.
The need for transparency and accuracy now is critical, just when you are at your limits. There are significant legal complications that can arise if mistakes are made in the process, even accidentally.
If your business is at the point of insolvency or by reading this article you realise it is closer than you thought then you need to take action. Call in the professionals and get some specialist advice to see if your business is recoverable, what steps need to happen to achieve this or whether insolvency procedures need to begin.

What next?

Fortunately the first step is the easiest.
Business Rescue Expert offers a free initial consultation to talk through your business’s unique circumstances and give their opinion based on the facts.
Get in touch today and take charge of your businesses destiny again. Email us at ask@businessrescueexpert.co.uk or use our contact form here.

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The construction industry is currently facing renewed concerns regarding the number of firms at risk of insolvency, especially in the wake of the recent Carillion collapse. Recent insolvency statistics reported that the construction industry has the second highest number of total liquidations per industry each year.

The challenges that the construction industry faces is down to a number of factors. In this article, the team at RJ Lifts delve deeper into the insolvency issues within construction whilst outlining potential businesses recovery strategies.

The insolvency statistics from 2017 show an increase in overall company insolvencies in the UK, particularly voluntary liquidations. This actually accounted for the largest number of insolvencies in the UK, with a figure of 12,861.

The construction industry saw 2,633 companies experience insolvency during 2017. The number of construction businesses facing insolvency has also seen a 0.5% increase annually.

In 2017, the sector recorded many important issues, leading the press to conclude that over a quarter of construction firms in the UK are likely to hit insolvency by 2020.

Insolvency cases in construction


As mentioned, the Carillion collapse is by far the most notable case of compulsory liquidation within the construction industry. Back in July 2016, Carillion projected a market value of £1 billion, spreading into Canada, the Caribbean and the Middle East.

The business had a huge number of employees - 20,000 in the UK, and 42,000 globally. However, as business began to expand, many of the contracts they secured became unprofitable.

The initial stages of the collapse came to light in 2016, with three profit warnings issued later the same year. The market value of the company therefore dropped to £61 million, partly down to the investigation by the Financial Conduct Authority (FCA) regarding their HS2 contract.
Another case involves B&Q, the UK’s leading DIY chain. Although not currently facing insolvency, they have experienced a steep decline in profits. Kingfisher, owners of the construction store, advised that direction of the chain was “uncertain”, as they disclosed a 9% drop in shares. The rise in interest rates last November had also been suggested as a possible effect on the companies stability.
Carpetright have also recently announced their new business recovery plan and are considering a company voluntary arrangement (CVA) to close all unprofitable stores and therefore cut down on rent costs.

Why are construction companies facing insolvency?

Insolvency rates in the UK within construction have always been high, with several reasons backing this up.

Finances

Bad debts and late payments are the main trigger for such insolvencies. Tax payments also leads to an overwhelming number of firms seeking business recovery plans. Whether it be paying tax in one lump sum, making several payments at a time or incurring penalties, these can all contribute to a company’s overall cash flow.
If VAT penalties aren’t paid in full or by arranged payments, it can lead to devastating consequences. Not making these payments indicates financial issues to HMRC, and you may incur a default surcharge notice.
HMRC grant times for a company with their first late payments, and smaller businesses are treated with more leniency compared to larger establishments, but if you do fall behind with payments, the HMRC business payment support service must be immediately informed.
There are two options for firms who are unable to pay VAT liability:

Competitors

Construction output in the UK amounts to more than £110 billion per annum, contributing 7% of GDP. Therefore, we find a lot of competition in the sector regarding large-scale projects. With a large amount of construction firms competing for jobs, work if often price sensitive. In various cases, charging lower prices may seem the best option in order to gain a contract.
The rise in construction businesses has also caused many employers to look for more experienced contractors, benefitting larger companies but leaving the smaller firms without a profit.

Credit

Due to the increased number of construction industry insolvencies, suppliers and clients contractors either fail to receive or make payments, resulting in cash being owed to various external creditors.
As such, construction firms tend to have much bigger debts, which can affect their ability to get credit. The shortage of capital assets can mean that credit are at high-rates when looking for business support.

Construction Industry Scheme (CIS) Arrears

The Construction Industry Scheme (CIS) outlines the takings firms receive from a subcontractor’s payment, which is passed on to HMRC. Every construction business must verify their own CIS regulation, deduct the appropriate amounts and submit payments to HMRC, as well as monthly statements to subcontractors.
However, if the payment is withheld, HMRC will act quickly. If you’re able to pay immediately, no further action is usually taken. Otherwise, an agreement will have to be negotiated, similar to that of a VAT penalty.

Communication with your creditors

Consideration must be given in the interest of your creditors, especially for those experiencing cash flow issues. By having an open communication with your creditors early on, it makes it possible to put relevant agreements in place that will allow you to spread payments and avoid facing insolvency procedures at all.
For example, informal arrangements costs much less to implement and ultimately, it is in your creditors’ interests that the company in successful. Similarly, CIS or VAT arrears don’t necessarily have to mean your business is over. However, ignoring such problems will affect the durability of your firm.

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One of the biggest areas of industry expected to be hit badly by Brexit is the haulage industry; the BBC has recently released an article suggesting no deal would be a disaster for the haulage industry. This is due to UK haulage firms requiring an additional permit to operate in the EU, including Ireland, after Brexit. Where 40,000 permits are required, only 1,200 have been issued to date, meaning the majority of companies will be unable to operate in the EU if a no deal Brexit takes effect on 29 March 2019.

Haulage insolvency statistics

Until 2017, the number of haulage insolvencies each year had been in decline, reaching a low of 143 for the entire year of 2016. The below chart demonstrates there is some correlation between the number of haulage insolvencies and the price of diesel, however the effect is limited with other market factors at play.

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2017, however, shows a spike in haulage insolvencies, with more incidents of insolvency than the previous 2 years combined. It appears the very announcement of a Brexit date had a marked effect on the industry before any actual changes had taken place. This suggests that following the referendum result, changes were already taking place in the marketplace, with companies perhaps securing alternative suppliers within the EU for operations on the continent, rather than using a UK Haulage firm as they may have done previously.

Whilst there is estimated to be some decline in 2018, based on the provisional figures used from the ONS, a no deal Brexit on 29 March 2019 is almost certain to lead to another spike on Q2 and Q3 of 2019, depending on the resilience of the haulage firms in question, due to the inability of many firms to trade in the EU from this date.

What are the requirements of a haulage firm after Brexit?

In the event of a no deal Brexit, additional permits will be required to drive freight and haulage vehicles in the EU, which are currently not required. This includes driving over the border in Northern Ireland. Within its no deal planning, the EU has proposed that UK haulage companies will be able to continue to carry goods into the EU, providing that the same right applies for EU firms operating in the UK, without any additional permits. However, this is only a temporary measure due to expire on 31 December 2019.
Rather than being a solution to the issue, this is viewed as pushing the issue 9 months down the road and has yet to be confirmed. Regardless, a no deal Brexit would result in a cliff edge for many haulage firms, the only question is when.
In addition to the requirements for permits, a lack of customs arrangements would mean additional checks would need to be carried out on each vehicle. The Road Hauliers Association (RHA) estimates that each vehicle would take 45 minutes to be checked, leading to enormous queues if these checks are carried out at the ports. It should be noted however that these checks can be carried out away from the border at specific inspection posts.
In the event of a no deal Brexit, the value of the pound is expected to plummet, which will have a significant effect on fuel prices (Norway being the largest exporter of fossil fuels to the UK). With the number of haulage insolvencies being sensitive to the current fuel price this will have a further negative effect on already struggling haulage firms.

What’s next for the haulage industry?

With the current deal on the table, for which there is disagreement amongst MPs on how it proceeds, the transition period would provide another year to seek to resolve the issues, over and above the no deal proposals currently on the table. Whilst this could provide some relief for the haulage industry, allowing certainty on contracts until at least 31 December 2020, this is still not a solution to the overall problem.
Until there is a long term trade and customs deal with the EU, uncertainty will continue to weigh upon the haulage industry. However, as this industry is key to so many other industries, a deal in relation to the haulage industry will be a high priority for all parties involved on both sides of the border. As a preparatory measure, separate firms and drivers can be set up on both sides of the border, however this is an expensive option and may not be viable for struggling haulage companies in the long term.
Until a deal happens, we recommend owners of haulage companies, particularly those who are currently struggling financially take advice on the position for their company as soon as possible, particularly with the requirements of an operators licence requiring you to do so and inform the traffic commissioners of the same. Our business rescue experts can offer free initial advice relating to your haulage firm in the event it is significantly impacted by a no deal Brexit.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association

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