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Virgin Active

They think they’d look to the middle of any proposed scenario as a starting point and work from there but real life with all its caveats, complications and considerations means that solutions are rarely as simple and equitable as 50/50.

Two recent legal cases involving Virgin Active and New Look have illustrated what a difficult concept “fairness” is - especially if you're a corporate landlord. 

Virgin Active operated a chain of national health clubs which suffered a dramatic loss of income when they were closed as a result of the Covid-19 pandemic and subsequent year of lockdowns

They decided that the only way the business had a viable future would be if it was able to restructure its debt commitments. 

This was objected to by various landlords who own properties rented by Virgin Active and the company subsequently failed to secure the necessary 75% majority from its creditors so a court was asked to rule on the plans. 

Under new legislation created in the Corporate Insolvency and Governance Act 2020, a court can agree to a company’s proposals if none of the dissenting creditors would be financially worse off than if the business entered administration or ultimately liquidation. 

Another condition to be met is if the restructuring plan has been approved by a creditor who has a genuine economic interest in the relevant alternative. 


What is a restructuring plan? A restructuring plan is an arrangement between a company and its creditors resulting in a reduction or restructure of any outstanding debts and liabilities. A court must agree to sanction it for it to become binding on all parties.


While similar to the already well-established “scheme of arrangement” process, a new power known as “cross class cram down” allows the court to override the objections of certain creditors and bind them all to the agreement if the court sees it as the most viable way forward for the business. 

Previously, certain creditors could hold up or vote down a procedure if they were unhappy with their probable returns regardless of whether it meant the business had a chance of surviving or not. 

In a relatively new precedent, a judge agreed to sanction Virgin Active’s restructuring plan which legally allows companies to reduce owed rent debts to landlords and other creditors instead of entering a CVA agreement which would entail all creditors potentially losing more. 

The judge found that under the proposals, the return to all creditors was higher than they would receive under an alternative insolvency procedure so agreed to implement the “cross class cram down” mechanism, reducing their rental obligations. 


What is a CVA? A Company Voluntary Arrangement or CVA is an agreement between a company and its creditors to pay a set, monthly fee for a period of times, usually five years, that will go to creditors in return for a proportion of existing debt being written off and the business being allowed to continue trading and not being threatened with winding up and liquidation. 


The other pertinent case was brought against clothes retailer New Look by landlords challenging its Company Voluntary Arrangement (CVA). 

New Look entered into a CVA in September 2020 as a result of severe trading difficulties caused by the coronavirus pandemic. This was the company’ second CVA in recent years, the first being launched in 2018, but the subsequent crisis necessitated a new agreement. 

Various landlords who owned properties leased by New Look challenged the arrangement on the grounds that they would suffer unfair prejudice and that there were other material irregularities within the procedure. 

They argued that the CVA would be unfair to them because some creditors would be treated preferentially and their votes were the ones used to pass the agreement in the first place. 

They also argued that moving to a turnover based rent system after the CVA had concluded; the imposition of a three-year rent concession period and the release of “keep-open” covenants, allowing New Look to close certain unprofitable stores, all unfairly impacted them.

The court rejected these arguments saying that differential treatment of creditors does not make a CVA materially unfair but depended on the unique circumstances of each case.

The judge found that as creditors would likely receive a better financial outcome under the CVA than any alternative, it would pass a fairness test.  


Chris Horner, Insolvency Director with Business Rescue Expert, said: “While the restructuring plans regime is being tested in court, we can already see how useful and flexible it can be.

“While both recent cases involved large businesses covering several locations, it proves that they can be part of a holistic solution for otherwise viable organisations looking to restructure their liabilities and find a path back to profitability, no matter what size they are. 

“Some individual landlords might be annoyed at having to take a financial hit but a thriving tenant will be able to provide more reliable returns than counting on the proceeds of asset sales in a liquidation. 

“CVAs, administrations and now restructuring plans give insolvency practitioners a range of viable and flexible tools to help businesses survive and rebuild on stronger foundations.

“The pertinent question creditors need to ask themselves is “what’s the alternative?”

“If more companies consider a restructuring plan as an alternative to a CVA, depending on their circumstance, it will generally mean that the costs of debt restructuring are shared across all creditors which, as well as being “fairer”, should mean more business recoveries. 

“A restructuring plan increases the chances that a financially distressed firm will be able to restructure and bounce back within one procedure rather than looking to renegotiate or relaunch subsequent CVA’s.

“If the past 12 months have taught us anything, it’s that we should all look beyond our own circumstances and see if we can do more to help wider society.

“Fairer outcomes for creditors and recovering or restructuring companies would be a good start”.


While the country gets back to trading with less restrictions, it will be some time before we see if certain changes of behaviour enabled by the pandemic and response are here to stay or a temporary solution. 

New laws and rule changes are part of this. They might prove universally popular and useful and enjoy widespread adoption, or collectively they might be seen to have outlived their usefulness and a better solution found to tomorrow’s problems. 

Directors and business owners need to be more focussed on what happens to today, and this is where we can help. 

We offer a free, initial consultation where we can discuss what obstacles your company faces right now and come up with some realistic solutions on overcoming them. 

There might be some ideas that you haven’t considered but the sooner you decide to take action, the more options you’ll generally have to act on. 

Click the link above, pick a time that’s convenient for you and we’ll do our very best to help your business get back on its feet. 

We can’t say fairer than that. 

Wheatsheaf

Photo by Reece Horton


The Chancellor Rishi Sunak delivered a spending review which will have ramifications for their businesses in terms of support and tax liabilities. 
 
The arrangements for Christmas will be announced by the four UK nations governments along with finding out the new Covid-19 tier status of every local authority in the country which will let some businesses know if they can open at all. 
 
Others will find out what they can sell with various restrictions and one of the busiest shopping days of the year - Black Friday - is hours away. 
 
With so much happening, it’s easy to miss some of the biggest insolvency and administration stories that happened this month but we’re happy to bring you up to speed.   
 
Edinburgh Woolen Mill Group
 
Four of the UK’s top high street names owned by the same group all entered administration within a tumultuous two week period this month. 
 
Edinburgh Woolen Mill and Ponden Home closed their physical retail stores on November 6 with the immediate loss of 860 positions. They are owned by the Edinburgh Woolen Mill Group is ultimately controlled by entrepreneur Phillip Day. 
 
Less than two weeks later, two of the groups other central brands - Jaeger and Peacocks - also entered administration putting a total of 6000 jobs in jeopardy while administrators work to restructure and eventually sell the business to prospective buyers. 
 
A spokesperson said: “Recent months have proven extremely challenging for many retailers, even those that were trading well before the pandemic, including the teams at EWM and Ponden Home. 
 
“Regrettably, the impact of Covid-19 on the brands’ core customer base and tighter restrictions on trading mean that the current structure of the businesses is unsustainable and has resulted in redundancies.
 
They continued: “In recent weeks we’ve had constructive discussions with a number of potential buyers for Peacocks and Jaeger but the continuing deterioration of the retail sector due to the impact of the pandemic and second lockdown have made this process longer and more complex than we would have hoped.”
 
They confirmed that a “standstill agreement” had been secured with the HIgh Court that had temporarily put off administration but had expired. 
 
“Therefore as directors we have taken the desperately difficult decision to place Peacocks and Jaeger into administration while those talks continue.”
 
Wheatsheaf Shopping Centre
 
It’s not just shops that are closing at the Wheatsheaf Shopping Centre in Rochdale, the whole centre is closing next month for good. 
 
In recent years it has lost big anchor tenants including Argos, New Look, Wilko’s, Rymans, Brighthouse and Select but the news is still devastating to the remaining stallholders. 
 
Charles Denby of MCR Property Group who manage the centre said: “The ongoing coronavirus pandemic has expedited the migration from traditional shopping habits and the impacts on the retail sector have been significant. 
 
“Since reopening after lockdown in June 2020, footfall has been tracking at an average of 45% down year-on-year and this lockdown will impact these figures further. The financial viability of the centre is not sustainable.”
 
He continued: “Nationwide we continue to see a large number of retailers experiencing serious trading difficulties, and more are resorting to insolvency procedures to cut their rent bills. 
 
“When the change in shopping habits collides with reduced income, an excess of space and cost structures that are simply no longer realistic, landlords have to take action.” 
 
Vanners
 
A silk company which had been trading in Suffolk for nearly 250 years has gone into administration with the loss of 32 jobs. 
 
Vanners was founded in 1740 and moved to Suffolk in the late 18th Century when the county became the hub of the British silk weaving industry. 
 
Still designing and manufacturing silk fabrics and products for the fashion and furnishing sectors, Vanners provided silk for Her Majesty Queen Elizabeth II’s coronation gown as well as more recently the singer Adele and former US First Lady Michelle Obama. 
 
A spokesperson said: “Vanners had been experiencing difficult trading conditions for some time, which was exacerbated by the severe impact of Covid-19 on the fashion sector. We intend to fulfil outstanding orders while we seek a buyer for the business.” 
 
Revolution
 
The city-centre based Revolution Bars has entered a CVA which will see six of its sites close immediately. 
 
While they anticipate that the group's cash flow will improve over the two-year period of the arrangement, they said that the long-term impact of Covid-19 including a one-off £1.1 million cost, meant that they must consider all necessary options to ensure the business can remain viable. 
 
Chief Executive Rob Pitcher said: “I’m grateful for the support of our creditors in approving the CVA which is a positive step in the right direction for the business.”
 
He also said that while he welcomed government support, the hospitality sector had been severely affected by it’s “often illogical, inappropriate and disproportionate response to the pandemic. 
 
“To plan ahead, we still require guidance on how the sector can ultimately exit the current restrictions in a safe and timely manner.”
 
Abercrombie and Fitch
 
American bellwether fashion retailer Abercrombie and Fitch announced that it will be closing its flagship London store as part of an “ongoing global store network optimization initiative” that aims to reposition the brand from larger format, tourist-dependent flagship locations to smaller store that cater to local customers. 
 
This cuts the number of “flagship” locations from 15 to 8 by the end of January 2021. CEO Fran Horowitz said: “As we approach the peak holiday selling period, inventories remain well-controlled and we have thoughtful plans in place to help us adapt to changing business conditions. 
 
“As we have done since the start of the pandemic, we will utilize our proven playbooks to remain agile and provide the best omnichannel experience for our customers.”
 
Although it might be argued that the pandemic has rendered most retailers playbooks obsolete which is why so many are having to change their strategies and look for insolvency advice to survive.
 
One thing that can be guaranteed in this most inexplicable, unexpected year is that things will be busier in the remaining month of 2020. 
 
Some companies will be made by the decision taken in the next couple of weeks but sadly some will also be broken if they cannot function normally because of local or national restrictions. 
 
It can be hard to remain focused when there is so much happening but if you’re running a business and you feel like you’re running out of time and places to turn - there is a route available for you - and it always will be. 
 
We’ll arrange a free initial consultation with you when it’s convenient to discuss what your company is up against. 
 
Once you get in touch we can give you our professional assessment on your available options including some ideas you might not have thought of yourself. 
 
Time is critical right now so the sooner you get in touch, the quicker you can then act to protect and preserve your business but only if you act while you can.  Some options are time limited and with an uncertain festive period ahead, these days and weeks ahead might be the difference between how you welcome in 2021. 

Dentist
An equal amount of coverage and adulation has been given to the tireless NHS workers and GP’s who’ve stepped up to face a once-in-a generation challenge with the same selfless professionalism and dedication to duty they’re renowned for. 
 
But there’s one branch of the health services that experienced a very different year and that’s dentists. 
 
From a public health point of view since March there have been collectively 19 million fewer dental treatments in England alone compared to 2019. 
 
Research from the British Dental Association (BDA) warn that not only are practices operating at a fraction of their capacity during the pandemic, limited to emergency treatment in many cases, but that hundreds of practices could be forced to close within the next year without extra financial support. 
 
During September and October 2020, dental practices were operating at a third of last year’s level. 
 
The BDA conducted interviews with 1,337 dental practitioners and more than half said they would not be financially viable a year from now unless they were given extra support. 
 
The oral health implications are also stark with a combination of dentists closing and less patients being seen. 
 
Sam Shah, group clinical director for East Village Dental, a group of six practices in the south of England said: “At least two of my surgeries, both in deprived communities with high levels of need, are at risk of closing within the next 12 months if the government doesn’t intervene.
 
“These communities have a lack of access to any other NHS dental services. We’ve seen an increase in the number of people using painkillers to manage dental pain - and that’s led to an increase in the number of people presenting at A&E after inadvertently overdosing on paracetamol or ibuprofen.”
 
Dentist insolvency matters
 
Sadly because of the ongoing uncertainty around restrictions on dental reopening for non-emergency services, several are facing severe financial difficulties and should be considering options to help alleviate these. 
 
Moving quickly to get professional advice and then choosing to pursue a CVA or administration could be the best solution for a dental practice that is hoping to reopen but has no clear pathway to welcoming customers back into the surgery. 
 
There was initially some confusion around whether insolvency could affect a dentist’s professional registration or even their future ability to hold NHS treatment contracts. 
 
Fortunately the answer is no, it won’t.
 
Insolvency proceedings do not affect a dentist's registration with the General Dental Council (GDC) or their membership of the British Dental Association (BDA) in any way. 
 
Most dentists work with a mix of private and NHS patients so there’s no reason why dentists working through formal insolvency proceedings can’t carry on private dentistry work. 
 
If they enter a CVA, administration or CIGA restructuring there’s no requirement for dentists to inform customers. They do have to notify the NHS if they hold treatment contracts and enter any formal insolvency proceedings but there’s no obligation on the NHS to terminate contracts in these circumstances.
 
It’s a testament to the care and professionalism the profession is noted for that they consider their future standing so carefully and we’re happy to set any of their worries aside.
 
If you’re a dentist then the thing you’d probably like more than anything else this year is some certainty about your future. 
 
When will you be able to see non-emergency patients again? What restrictions will remain if you can? Will it be governed by which area of the country I like in when tiered lockdowns return again?
 
Good advice can bring certainty of purpose and action too. 
 
Get in touch with us today and we’ll arrange a free initial consultation which can be held virtually at a time convenient to you. 
 
We’ll discuss the circumstances of you and your practice and be able to summarise what your immediate options are and what action you can take now while waiting for bigger decisions to be made. 
 
This could be the first step toward a brighter future so when you can begin practice again, you could already have made some changes to protect your business and livelihood in the meantime.

two paths
The three most important additions introduced were:-
 

 
We’ve talked about the insolvency moratorium at length elsewhere but it’s a positive development that can only help companies by giving them breathing space to restructure their businesses while legally protected from creditor actions. 
 
Ipso Facto clauses used to allow suppliers to terminate contracts for goods and services if the company underwent an insolvency event but this orders them to keep the supply going which will give the company a better chance of trading their way back to profitability. 
 
The restructuring plan procedure, which some learned writers are referring to as the “super-scheme”, should be better known than it already is because it’s going to have a big impact in 2021 and beyond.
 
It gives professional insolvency practitioners additional tools to help protect businesses looking to restructure but with one important new power modelled on the American style “Chapter 11” bankruptcy process.
 
Whilst an insolvency practitioner does not take an active appointment on the matter, assistance from such professionals, like those at business rescue expert, is key in having these arrangements approved.
 
It runs parallel to the existing Scheme of Arrangement process, where a court can oversee corporate restructuring efforts without the business having to enter insolvency or be sold as a result. 
 
Whilst, like a CVA, 75% of creditors in value are required to approve the restructuring plan, if the threshold is not met, dissenting creditors can be legally bound to accept the restructuring plan by the court if it’s found to be fair and equitable to do so. The downside to this however, due to the costs of going to court, is the process is significantly more expensive to implement than a CVA.
 
If it can be proven that none of the creditors would be any worse off if the plan didn’t go ahead and that the plan is indeed realistic. By worse off, this is often compared to the alternative, which is often the outcome in liquidation or administration, meaning there is a wide discretion for the plan to be approved, but again the involvement of an insolvency practitioner is likely to be needed to make such a certification.
 
The CIGA Restructuring Plan Application Process
 
A CIGA restructuring plan can be applied for with or without the use of the new insolvency moratorium
 
The plan will generally take time to fully implement so the moratorium can provide the necessary breathing space to allow the restructuring plan to be considered. 
 
Because court hearings are required as well as a creditors meeting, the plan could easily take two to three months to implement, compared to the average of four to six weeks that a CVA would take.
 
How it works
 

 
Crown Preference = CIGA > CVA ?
 
There's another important calculation that businesses considering restructuring need to take into account - the return of Crown Preference.
 
We’ve previously written about how HMRC’s newly restored priority in the hierarchy of creditors will cause unintended effects throughout the economy. 
 
Practically this means that some companies that would previously have been looking at a CVA to restructure their business and readjust course will now have to enter administration or even liquidation in order to satisfy this new aggressive creditor at the expense of others who might have been prepared to back a CVA and would see little return, if any from an insolvency.
 
As a result of the return of crown preference, HMRC will mop up the first dividends issued under a CVA. With HMRC as an unsecured creditor, all creditors may stand to receive 60p/£ from the arrangement, where with the return of crown preference, HMRC may receive 100p/£, with the remaining unsecured creditors only then receiving 10p/£ after HMRC have been paid in full.
 
Where this may be too much for creditors to accept under a CVA, if it is realistically the best outcome, the alternative being liquidation, the CIGA restructuring plan would still bind creditors to accept the arrangement, even if they oppose it en-mass.
 
The good news is that you’ve got a professional friend in your corner at exactly the time you need them. 
 
Business Rescue Expert provides a free initial consultation for any business to discuss what problems they’re facing right now and how they fix them in the short, medium and long term. 
 
Get in touch with us to arrange one and we can outline all the options available to make sure that no matter how rough 2020 was, you can begin 2021 with hope.

British pubs
Even if you didn’t frequent the Queen Vic or The Rovers Return as much as the residents of Walford or Wetherfield you knew what a pub was and what they were for. 
 
They were as much a part of the local community as the library, church or community centre and gave everybody the opportunity to find what they were looking for. 
 
Whether it's a convivial company to share and celebrate good news, space and silence to consider bad, or the chance to sample drinks and food from around the world or just down the road - the pub is an integral reflection and representation of the people of these isles. 
 
So it’s staggering given the dire straits that the hospitality industry and specifically pubs and bars find themselves in that there is still a widespread ignorance or apathy to the fate starring many of them in the face. 
 
A new study from pub industry data specialists CGA found that nearly a third of licensed premises had already closed their doors before the second UK lockdown was announced and implemented. 
 
69.9% of respondents were trading at the end of October 2020, a fall of more than 10% on the previous month or the equivalent of nearly 12,000 pubs shutting up shop. 
 
It’s still unclear how many of these closures are temporary or permanent but a sobering assessment from three of the leading beverage trade groups expected that 43% of closed outlets would never reopen. 
 
The research found that many of the closures were triggered by the three-tier system of restrictions which forced pubs and bars in “very high” or level three alert areas to close unless they were serving substantial meals along with drinks. 
 
While the numbers of pubs and bars open in level one and two areas respectively were over 80%, just over half (52.8%) of licensed premises in level three areas were reported open at the end of October.
 
The study also highlighted the dramatic impact the 10pm curfew had had on a struggling sector. 
 
Only 63.1% drink-led businesses remained open at the end of October compared to 79.9% of food-led businesses and 81.3% of casual dining restaurants including chains.  
 
Well-capitalised pub and restaurant groups will be better placed and resourced to survive the second lockdown intact with 81.8% of their managed venues remaining in operation. This is compared to the 63% of independent sites that were still open and relying on a dwindling combination of savings, loans and overdrafts to make it through to December 3rd when the current lockdown is scheduled to be lifted. 
 
Karl Chessell, head of Food and Retail research at CGA said: “It’s very clear from this report that every new restriction damages businesses’ ability to trade. 
 
“With Englad entering a second lockdown, we are unlikely to see Britain’s licensed premises return to the levels seen in the summer, let alone pre-pandemic, for a long time.”
 
He added that the extension of the Coronavirus Job Retention Scheme (CJRS) furlough would help but urged even more government support to “prevent a wave of permanent closures over the winter.”
 
The industry took heart from some good news that would allow some establishments to sell takeaway alcohol under certain restrictions. 
 
Selling a few gallons of beer to customers instead of having to dispose of it down the drain will be a small comfort to the bars and pubs that can do it but it’s still a drop in a pint glass compared to the hundreds of thousands of pounds of lost revenue that won’t recouped by the industry even if they are all allowed to open their doors again without restriction next month. 
 
Every good landlord has to have the instinct and nerve of a poker professional - when to stick with what they’ve got; when to gamble based on their instinct and evidence that things will improve and also when to fold. 
 
Circumstances mean that not every otherwise profitable pub will be able to reopen when Covid-19 is nothing more than a quiz answer and a sad memory.
 
This doesn’t mean that they have to wait for the inevitable - they can take the initiative and get in touch with somebody who can help right now.
 
We’ll provide a free initial consultation where they can set out what the situation their business is facing and we can let them know what steps they can take - today - to change it. 
 
Depending on a lot of factors, they could consider a CVA or administration to buy them time to work out a rescue and restructure which will give the company every chance of being able to come good again.   
 
They might even decide that if they are having to close then they could do it properly and allow themselves to begin again later with a clean slate.
 
What has happened to hundreds of pubs and bars across the country this year has been a tragedy but it’s equally tragic to consider closing down without exploring all the help and advice that’s still here for you - whenever you want it.

Scaffolding
 
 
 
 
 
 
Financial restructuring is more complicated than moving some tables around and marking out one meter spaces but it’s a chance to save a business and fundamentally improve its financial footing. 
Many companies will be under severe financial duress even if they are planning to open. They may be behind on their rent or owe their suppliers or be chasing payments they’re owed. 
No matter what the cause of their difficulties, business restructuring could be their last, best chance to save the company and work with creditors to reorganise their debts. 
 
What are the key components of a successful business restructure?
 

For any restructuring to work there has to be a reasonable chance for the company to become a viable business again. If there isn’t one then insolvency would ultimately be the only reasonable option, especially for unsecured creditors.  
 

Any successful restructuring rests on the goodwill and forbearance of your creditors. 
Keeping them informed, updated and letting them feel an actual part of the process will be critical in keeping their support for your plans.
Here’s why - disgruntled creditors can make demands for payment through a statutory demand or initiate formal insolvency proceedings through a winding-up order.  
These actions are currently suspended until September 30th 2020 but they will be operational again by then and any of them could effectively invalidate any agreement reached with other creditors.
 

If any restructuring effort is going to be successful then agreements have to be reached that will prevent creditors from making any demand for payments; enforcing security or initiating any formal insolvency procedures. It needs certainty and commitment to prevent it from being undermined by a single, determined creditor. 
 
Restructuring Options
 
When a company pursues a restructuring agreement then they will usually look to enter a contract with their creditors outlining how the business will operate during this period and how much they could ultimately expect to be paid. 
It can also be beneficial to combine restructuring with a statutory insolvency process such as administration or a company voluntary agreement (CVA) too - as they come with their own range of legal protections. 
 

This formally sets out how a company and its creditors will continue to deal with each other to help solve the company’s issues. 
It’s an informal rather than legal procedure but would still require the consent of all creditors and parties bound by the agreement. 
There’s no statutory stay imposed on actions or claims by creditors so any agreement should set out the provisions within which creditors promise not to make repayment demands, attempt to enforce security or initiate formal insolvency proceedings of their own. Although currently banned, a restructuring agreement could carry over this date. 
Any agreement would also regulate terms on which creditors could be repaid including possible deferments, temporary or permanent reductions, interest payments and whether there would be any new securities granted to creditors. 
 

Administration is a formal procedure whereby an external administrator manages the company instead of its directors. 
One of the many advantages of administration is that it places a statutory moratorium on all of the company’s creditors which makes it ideal to work with a separate restructuring process.
 

A CVA is another administrative procedure which gives the legal protections of an administration but also allows the business to negotiate away a proportion of outstanding debt too.  
75% of creditors have to agree to the CVA and if passed becomes binding on them -  providing the administrator with additional time to put together a restructuring or rescue plan for the business. 
Another advantage of a CVA is that it allows a company to remain trading while the process is ongoing - allowing it more opportunity to eventually emerge stronger, resilient and profitable. 
 


 
Restructuring is just one of the array of available options for businesses struggling to reopen from lockdown and get their business ready to receive customers - virtually or physically.
The earlier a company gets in touch, generally the more choices they have when it comes to choosing a path forward. 
We’re available to make a virtual appointment whenever it’s convenient to discuss where you see business going and what routes are open for you to get there. 
The situation and rules themselves are changing so the earlier you make contact, the quicker we can get to work with you. 
 

Rule Changes
 
 
 
 
 
This will officially bring in a moratorium or “breathing space” that lawfully gives companies time to explore options for rescue and restructure. 
 
The other big news was that the current rules on wrongful trading are to be suspended
 
The current rules state that directors of limited liability companies can become personally liable for business debts if they continue to trade when uncertain whether their company’s can meet their debts. 
 
Their rationale is that if these rules are relaxed then directors will be reassured that decisions they have to make now about the future viability of their businesses won’t be unduly influenced by the exceptional circumstances beyond their control they find their businesses in. 
 
The new rules, which they plan to legislate through parliament at the earliest available opportunity, will include:
 

 
The existing laws for fraudulent trading and subsequent director disqualification will remain to continue to act as an effective deterrent against director misconduct. 
 
Chris Horner, Insolvency Director with Business Rescue Expert said: “These new rules are not a get-out-of-jail-free card.
 
“We’re in favour of support to companies in straitened circumstances if it helps us in our work of rescuing them and putting them on a sounder footing, but there are limits. 
 
“The rules on preferential payments and transactions at undervalue will still apply and wrongful trading will still apply if the business had already reached the point of no return prior to March 2020. It therefore remains important to take advice if you still expect solvency issues, regardless of the government assistance.”
 
Duncan Swift, President of R3, the insolvency and restructuring trade body said: “We’re hopeful the government will address many of the concerns our members have expressed about the reforms. 
 
“For example, the moratorium won’t be useful if it can’t be accessed by all insolvent companies, so while they work on the details they should listen to creditors and landlords about how they will be affected by it. 
 
“Our members will continue to use the wide range of tools at their disposal to help restructure businesses and rescue jobs but there are some serious concerns about the plans to suspend wrongful trading. 
 
“A blanket suspension risks abuse. The provisions are there for a reason and protect creditors. 
 
“We understand that directors may be worried about consequences if they’re already missing debt payments but good advice from an insolvency practitioner will remove any risk of facing a wrongful trading action.”
 
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None of us have lived through a situation similar to this - unless you survived the Spanish Flu in which case stay extra safe. 
 
While it’s true that some laws are being tweaked, the fundamentals remain the same and if you’re already at risk of or actually trading while insolvent then you need some qualified, experienced help and advice right now. 
 
Contact us and we can arrange a free, virtual, initial consultation with one of our expert advisors at a convenient time for you. 
 
We can get an understanding of your company and the situation you face and come up with a clear roadmap to work through. 
 

lives of others
 
 
 
 
 
 
 
 
 
 
The Insolvency of Others
Now, not every one of these instances can lead to an insolvency event but taken together, they become clear and unmistakable signs that a company could be experiencing financial distress and they should look to take steps to alleviate it - including contacting experts at rescuing and restructuring businesses like, erm, us. 
 
However, you won’t necessarily know a supplier or customer is close to the edge until it happens - so here’s our guide of what steps to take to better spot and be able to better protect your business against insolvency events happening to others: 
 
 

 
It’s still surprising the number of people and companies that don’t do due diligence - whether they’re looking to enter into a new business relationship with a company or spend money or provide services to one.  
Companies House offers a free searchable database of UK businesses filed accounts and other pertinent financial information and events and lists of company officers and others with significant control. It’s not real-time accurate but is always interesting and sometimes vital. This should be the first search you make. 
 
 

 
If a significant amount of money or goods and services is involved then you could do additional checks including an audit of their financial health including obtaining a credit check or ask for credit references from other suppliers and vendors they’ve dealt with recently.  
 
 

 
Remember that if a company is in difficulty, it might not be permanent or terminal and you shouldn’t necessarily contact a solicitor or an insolvency practitioner at the drop of a hat. 
If you’re a creditor then remember that your debtor has to keep your interests uppermost at all times. By maintaining good, honest and constant communication, arrangements and compromises can usually be made. 
For example, if you decide to extend or spread payment terms, this might be the difference between a company remaining solvent or not. 
Should a company go into insolvency then having good communication channels and attitude when dealing with the insolvency practitioner will help facilitate goodwill and hopefully positive results. 
 
 

 
You always have the option of taking the initiative if you believe a company you are dealing with might be subject to an insolvency event and you want to secure payment before this happens. 
You can look at different methods of formal dispute resolution in order to obtain an adjudication as these can’t be later pursued against companies in administration or liquidation. 
 
 

 
 
This is a contract clause that allows a supplier to retain ownership of any goods they’ve supplied until they’ve been paid for or other conditions are met. This could stop a supplier from delivering goods but not receiving payment if the customer were to become insolvent. 
 
 

 
Most commonly used in the construction or engineering industries, a collateral warranty is a contract where a professional consultant or building contractor or sub-contractor agrees to the satisfaction of a third party (a funder or whoever brings the warranty) that they’ve fully complied with their professional duties as stipulated for the project. 
 
Collateral warranties can be bought by funders, purchasers or tenants and allow them legal redress to reclaim funds if there are any damaging faults or issues caused as a result of the professional’s actions, even if they’re not immediately apparent.
 
 

 
This is another financial fail safe mainly used in the construction industry but can also be applicable to many others.
It provides protection for a company if a supplier or vendor goes into administration and they’re owned or controlled by another or parent company. Any liability will then transfer upwards to them and they can be pursued accordingly. 
 
 

 
This kind of clause allows claimants to act against the insurers of companies that become insolvent or default on payments. They’re tightly written as the rights, limitations of liability and the ability to claim will be very specific as set down under this specific act of Parliament. 
 
 

 
These clauses allow a contract to be suspended or even terminated if one of the parties to it  becomes insolvent. It’s a standard but effective clause that effectively seals a business off from any ongoing or cumulative negative effects of the insolvency process. 
 
 

 
This shouldn’t need to be stated but if you maintain clear, up-to-date and accurate records, it will be far easier to demonstrate any losses that arise out of insolvency and can help your case if you have to liaise with an insolvency practitioner down the line. 

Charity
 
 
 
 
 
 
 
Incorporated in 1984, the Lifeline project was a registered charity employing 1,300 employees over 90 locations throughout England and Scotland. It provided drug and rehabilitation services to over 80,000 users including prisoners.
 
The subsequent report from the administrator to the Insolvency Service and further investigations revealed that the primary cause of the charity’s failure was signing three Payments by Results (PbR) contracts with some of the local authorities they worked with.
 
A PbR contract is commonly used in the healthcare industry and means that payment is only made for services if certain pre-agreed targets are met. The Insolvency Service found that the CEO and de facto director of Lifeline, Mr Ian Wardle, signed the contracts without performing necessary due diligence so he failed to realise that the targets in the contracts were unachievable.
 
This led to a non-payment of £1.4m worth of services which ultimately caused the charity to close. The Insolvency Service also disqualified Mr Wardle as a director for seven years.
 
More charities are working ever closer with local authorities looking to save money from shrinking budgets. Insolvency events such as those experienced by Kids Company and 4Children for example, are even more damaging as they directly impact front line services.
 
Charities finances are under increasing scrutiny and an independent review of the Charity SORP (Statement of Recommended Practice) committee, who are responsible for writing the accounting rules for the charity sector, led by Professor Gareth Morgan recommends that both reporting and accounting needs to be overhauled to provide more transparency and accountability and to simplify the reporting process.
 
The increasing number of restructures and insolvencies in the charity sector only highlights the necessity of good governance and running a charity as business-like as possible.
 
We’ve written previously about what happens when a charity is considered insolvent and the various financial tests trustees, board members and directors can apply to give them a clear indication of their charity’s strength.
 
The most positive action a charity can take if they think they’re running into financial difficulties is to contact us. We can advise on all available options for an organisation including potential alternative sources of funding, restructuring and administration if it’s the only viable course of action left.
 
Chris Horner, Insolvency Director of Business Rescue Expert, said: “Running charities in a business-like manner is a misunderstood phrase. People usually take it to mean spending cuts, charging more and paying lip service to their core mission while looking everywhere for profit but it’s actually about becoming more systematic and resilient.
 
“Charities should look at their operations and see where they could make them more robust and able to withstand external events like not receiving payments or staffing issues such as redundancies.
 
“Business structure is a good example. A charity set up similarly to a limited company will enjoy all of those advantages and protections such as limited liability.
 
“A board of trustees model sounds more equitable and ‘like’ a charity - but each member of that board would be personally liable for any debts if the charity failed! That wouldn’t happen as a limited company.”

four seasons
 
This is the biggest insolvency event in the sector since Southern Cross collapsed in 2011.
 
A Four Seasons Health Care spokesperson said: “We have decided to call in administrators in respect of the holding companies that carry the group’s debt. They are entirely separate from the operational business and administration does not change the way our homes are run and they will continue to operate as normal.
 
“It does not, in any way, impact the day to day running of Four Seasons Healthcare, brighterkind and Huntercombe Group which have sufficient funding to continue to operate and deliver continuity of care.”
 
They said there should be no unscheduled impact on Four Seasons’ care homes and hospitals which are now for sale to all interested parties. They expect the sale of their operational business to be completed by the end of the year.
 
The two direct holding companies of FSHC’s business - Elli Finance (UK) and Elli Investments Limited, were the vehicles placed into administration. The operations and cash section of the business is held by Four Seasons Health Care Group which is not being placed into administration.
 
The company as a whole is owned by a private equity vehicle called Terra Firma Capital Partners which paid £825m for the business. They currently owe more than £500m in debt which has been the subject of protracted restructuring negotiations over the past two years.  
 
A large portion of this is now held by H/2 Capital Partners, a US-based hedge fund who are seen as the likeliest owners of the business after purchasing hundreds of millions of pounds of bonds.
 
Approx 80% of FSHC’s operations is funded from the government but it also runs 46 privately funded care homes under the Brighterkind banner and an additional 23 specialist mental healthcare facilities for adults and children trading as Huntercombe.
 
The Care Quality Commission, the industry regulators, are monitoring the situation closely and have previously issued a notice about providers Allied Healthcare’s financial future.
 
Four Seasons have reiterated that it’s business as usual for residents but care home closures can still be worrying and chaotic for residents and their families.
 
Residents who have their bills paid in part or in full by their local council will be found a new place by them but residents who self-fund will have to find their own accommodation.  
 
The news brings the current social care funding model back into the spotlight.
 
Government Green paper overdue
 
Simon Bottery, Senior Fellow at The King’s Fund, an independent charity working to improve health and care in England, said: “The problems facing Four Seasons show the extreme pressure that the social care system in England is under. Despite recent moves to shore up social care providers, years of chronic underfunding have left services at crisis point.
 
“As the Competition and Markets Authority has identified, many care homes that rely on publicly funded residents are now financially unstable.
 
“It’s not just care homes but the whole social care system which desperately needs reform. Successive administrations have promised to overhaul the system, yet two years after the government committed to publishing a social care Green Paper it is yet to see the light of day.”
 
The CMA launched an investigation into the care homes market in 2016 to examine whether the sector was working well for elderly people and their families. The findings published in 2017 showed wider concerns and ultimately led to the CMA taking legal action against one provider, securing more than £2m compensation from another and issuing guidance to all providers regarding the practice of charging upfront fees and continuing to charge fees even after residents have deceased.
 
Acting CMA Chief Executive Andrea Coscelli said: “Demand for care home places is expected to surge over the next two decades. To make sure the additional capacity this requires is available, it needs to be built in good time. At present, short term funding pressures and uncertainty means that the sector is not attracting investment. We will be focusing on finding ways to deal with these and other concerns.”
 
The reports findings also noted that the sector was not incentivised to undertake the investment necessary to meet future demand. Also that as the number of people aged 85 and over was projected to double by mid-2039, demand for care home services would increase substantially. The level of care required would also increase as residents would have spent longer in their own homes so would be more frail when they did move into a care home.
 
Financial Markets analyst Nils Pratley suggests that if the government can intervene for public sector providers such as Carillion and Interserve, it has equal responsibility for the social care sector.
 
He wonders: “There is reason to wonder if this entire sector needs an ownership overhaul.  Financial engineers and junk bond opportunists should not be the natural owners and funders of large care homes companies.
 
“Given that the entire sector is underpinned by local authority funding, the government ought to be able to insist on greater financial strength.”

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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