Corporate insolvency statistics

Transcription

1 Winter 2012 What appealed to us most was their positive attitude Bailey Ahmad are focused entirely on supporting businesses. Sheetal Shah FCCA Shah Kazemi & Co in this issue Spotlight on the referrer: meet Sheetal Shah Dangers of preferential payments to creditors Meeting companies in financial difficulty - our first considerations Recent success stories Who s who - meet Paul Bailey and Chloe Fortucci With the Olympics behind us, the next big games are economic! The year ends with Britain s economy officially out of recession and with relatively low corporate insolvency rates. Have we turned the corner? Only time will tell... The year is drawing to a close, and what a momentous year 2012 turned out to be! Against the backdrop of a double-dip recession and associated global, political and economic turmoil, the Olympics and Queen s Jubilee not only gave a huge boost to our nation s morale, but also showed how much we can achieve as a nation (when we put our minds to it). Corporate insolvency statistics Statistics issued for the third quarter (Q3) of 2012 by The Insolvency Service show 3,971 company liquidations in England and Wales (seasonally adjusted); a decrease of 2.8% on Q and 6.6% less than the same quarter last year. Looking at the twelve months ending Q3 of 2012, approximately 1 in 146 active companies went into liquidation - a failure rate of 0.7%. Compared to a peak of 2.6% of active registered companies in 1998 and an average rate of 1.2% over the last 25 years, this rate remains low. Future challenges So what does the future hold? It s difficult to say, but we expect company liquidations to rise marginally - moving closer to the 25-year average, with trading remaining tough for many and HM Revenue & Customs continuing to take a much harder line on recovering unpaid taxes. If the current economic climate is causing you or your clients financial difficulty, please call Paul Bailey or Tom Ahmad on for friendly and professional advice.

2 spotlight on the referrer Bailey Ahmad struck us as being a fresh, creative and modern kind of company, working with new technology and aware of the latest industry knowledge and trends. Meet Sheetal Shah of Shah Kazemi & Co Chartered Certified Accountants (Shah Kazemi). Sheetal Shah is a partner at Shah Kazemi, a Chartered Certified Accountancy practice based in Herne Hill that offers companies of all sizes a range of services, including audit and assurance, taxation and business development consultancy. Shah Kazemi regularly recommends clients who are experiencing severe financial difficulty to seek Bailey Ahmad s expert professional guidance and support. Shah Kazemi recently recommended a corporate client of theirs to seek the assistance of Bailey Ahmad. Although historically a successful company with a strong track record and a number of on-going and future projects, difficulties faced on a current and relatively high-profile contract had led to severe cash flow problems. This threatened the company s financial stability and ultimately put it at risk of failure. Sheetal Shah tells how Bailey Ahmad and his client reached a solution that ensured his client s creditors were protected as well as providing a mechanism for those involved to move forward. If any of your clients are facing financial difficulty, please call Paul Bailey or Tom Ahmad on for friendly and professional advice. Q How do you know Bailey Ahmad? We met Tom at an industry event and were immediately impressed by Bailey Ahmad s approach to business how they are focused entirely on supporting businesses by helping them manage creditors and their overall finances so that they can stay in business and move back into a position of growth. They struck us as being a fresh, creative and modern kind of company, working with new technology and aware of the latest industry knowledge and trends. Q What made you choose Bailey Ahmad for your client? What appealed to us most was their positive attitude to finding solutions for clients and how they treat issues as hurdles rather than problems. Approaching each case with a fresh perspective, they do absolutely everything they can to rescue companies in difficulty. Their first response is invariably Let s see what we can do with the resources and skills at hand. Q What prompted your call to Bailey Ahmad in this case? Our client won a major contract involving this year s Olympic Games but, despite plenty of work coming in, was experiencing cash-flow problems caused by factors outside its control, including late payments, retentions and bad debt. Although everything looked good on paper, the company was firefighting financially, with a real risk that it would be unable to continue trading. Bailey Ahmad s creative and flexible approach meant they were the obvious choice in this case. Q What did the company hope to achieve with Bailey Ahmad s help? As well as staying in business, the directors wanted to be in a position to plan their finances rather than constantly firefighting, and move beyond a level of sustainability to profitability and growth. Q What was your client s first impression of Bailey Ahmad? During the initial meeting with the directors, Bailey Ahmad showed sensitivity to the directors emotional situation as well as to the practical and business requirements, which quickly reassured and put them at ease. Naturally, the directors were very worried about seeing an insolvency practitioner in the first place, but by the end of that first consultation they were feeling a lot more positive about the situation. Q What was Bailey Ahmad s assessment of the situation? Bailey Ahmad quickly identified the severity of the company s position. Uncertainties surrounding its current contract, disputed debtors and the extent of creditor liabilities meant that the prospect of restructuring the company s business in a way that would ensure the company s survival was limited. Q What solution did the company choose? In the circumstances, Bailey Ahmad advised that the best way to both protect creditors interests and allow the directors to move forward in a new business would be to place the company into Creditors Voluntary Liquidation. The company s directors acted on this advice and sought Bailey Ahmad s help in placing the company into liquidation.

3 Q How did the directors feel during this process? Initially, being both emotionally drained and having not been involved in a company liquidation before, the directors were understandably hesitant. Regular communication with Bailey Ahmad s directors and other team members kept our client in the loop, and this ease of communication and positive approach meant that they felt supported all the way through the process. Q Do you think that liquidation was the right solution for your client? It was undoubtedly the right solution; trading quickly recommenced in a new company and the directors are now optimistic about its future. Q Was there any aspect of Bailey Ahmad s service that particularly impressed you? Their ability to keep the client fully informed and carry out the liquidation process swiftly and efficiently meant that things were far less difficult for all those involved than they could have been. Q How are the directors doing now? The new company and its directors are doing very well. Not only are they trading without a huge debt burden, they ve developed short and long-term strategies for sustainability and growth. They re tougher with clients, ensuring that they are paid promptly for their work, and they are able to plan their finances better just as they had hoped to do. Q Would you use Bailey Ahmad again? We re very pleased with Bailey Ahmad s work for our client, and wouldn t hesitate to refer to them again. the dangers of making preferential payments to creditors and implications for directors A preferencial payment describes a situation in which directors pay specific creditors to make them better off than other creditors. When the company eventually goes into insolvent liquidation the Court has power, upon the application of the liquidator, to set such payments aside and enforce the beneficiary and/or the directors to pay the monies back. Firstly, however, the Court must judge whether it was the directors desire to create the preference, unless the beneficiary is connected to the company or its directors in which case desire is presumed by the Court (although the presumption is rebuttable). Implications for directors If it is proven that such a desire did exist, directors can face disqualification and may be liable to make a payment to the company at a level that the Court thinks fit. If any of your clients are in financial difficulty, it is important for them to have up-to-date financial information and to document the rationale for making payments so they can minimise potential personal liability. The action required will depend on the company s situation - if directors are uncertain we are able to give them clear and expert advice based on assessment of their individual circumstances. reins...was talking to Sheetal Shah, FCCA, Shah Kazemi & Co Chartered Certified Accountants tel: If you or your clients would like to know more about preferences, please call Paul Bailey or Tom Ahmad on for confidential advice.

4 our key considerations at initial meetings with companies in financial difficulty When we meet directors of companies under severe financial pressure, we ask the following key questions: Is it possible to rescue the company? Can the company and its business remain intact and continue to trade as a going concern? Typically this can be achieved via: Operational restructuring Refinancing Negotiation with creditors, in some cases involving implementation of a Company Voluntary Arrangement or a period of Administration while the business is stabilised. If it s not possible to rescue the company, can we rescue its business, either partially or wholly, via its sale as a going concern free from its historic debt burden? Such a transaction is usually completed by an insolvency practitioner dealing with the company in administration, and is subject to an independent valuation to ensure good value is achieved. Benefits include job protection and a premium achieved for the sale of the company s total business and assets as a going concern, compared to a break-up sale of assets in a liquidation scenario. Associated parties, including directors, are able to buy the company s business and assets as long as their offer represents good value both to the company and its creditors and that the transaction is fully disclosed. If either is not possible, how can we best minimise the emotional and practical impact of the situation on the company s stakeholders, allowing everyone to move forward? In some cases, a company s financial position is so severe that there is a limited prospect of either a recovery of the company or sale of its business as a going concern. By continuing to trade, the directors could worsen the position for the company and its creditors. In such a case directors, with our assistance, take steps to place the company into Creditors Voluntary Liquidation (CVL). Involving a cessation of trading, CVL gives directors the opportunity to confirm to creditors the events leading to liquidation and their efforts to protect creditors interests. Directors are also able to acquire the company s assets and goodwill from a liquidator on a breakup basis should they wish to restart in some form. Finally, we look at the directors financial means, the support from those around them, and what they hope to achieve. This gives us an in-depth understanding of their situation. When more than one option is available, the directors attitude may well be key to the solution we recommend. We consider all these factors when recommending a strategy based on the best solution in the circumstances. When doing this, we are constantly aware of the people involved, being mindful of the emotions they may be experiencing during what can be a very stressful time. In our experience, a combination of clear direction and support is critical in implementing successful solutions. Checklist of information we seek to identify the best solution for those who need our help. During initial meetings with directors, we gather extensive information regarding the company, including: Background Management and statutory accounts Statement of Affairs (current balancesheet drafted on a break-up basis) Cash-flow forecasts Details of creditors (secured, preferential, unsecured, personally guaranteed and duress creditors) Details of assets Key reasons for financial problems Steps taken to migitate losses Directors wishes Creditor views Any preferential creditor payments Connected party transactions Directors remuneration/loans Employee attitude Landlord s attitude Position with HMRC Whether customer deposits exist Work in progress Is the stock of a wasting nature any other relevant issues

5 recent success stories Company Voluntary Arrangement of a restaurant We were approached by the directors of a brasserie-style restaurant that had lost trade due both to the recession and increased competition. Cash-flow problems ensued, followed by increasing tax arrears. The directors responded by ceasing shareholder dividends, cutting costs and reducing overheads. These measures, whilst stabilising cash flow, did not raise sufficient surplus cash to reduce the company s historic debt burden. The solution We worked with the company s accountant who produced cash-flow projections that Solvent liquidation (Members Voluntary Liquidation) of a group The director of a group of solvent companies approached Bailey Ahmad when he decided to sell the group s multiple business interests with a view to his retirement. He sought our help to extract the value of his shares in the group (around 550,000) in the most tax efficient manner possible. The solution We recommended placing all three companies into solvent liquidation (known as Members Voluntary Liquidation or MVL) with a view to making a capital distribution to the shareholder, which would in this case qualify for Entrepreneurs Relief. The rate of tax charged on the capital distribution would therefore be only 10%. showed the business not only to be viable but, if given the opportunity by creditors, would give them a much higher return than if placed into liquidation. Accordingly, Bailey Ahmad assisted the directors in formulating a proposal for a Company Voluntary Arrangement (CVA) based on contributions of a portion of each month s profits into a fund over a period of 5 years. This was subsequently accepted by creditors with the following key terms: Monthly contributions to the CVA of a share of profits after tax for a period of five years Structured repayment of directors loan accounts due to the company Creditors to receive 75 pence in the pound during the term of the CVA, compared to a nil return in a liquidation scenario. Following the withdrawal of Extra Statutory Concession c16 earlier this year (concerning distributions to shareholders when a company is struck off the register at Companies House), in the absence of a MVL, any distributions to shareholders exceeding 25,000 would be treated as income rather than a capital distribution. A capital distribution carries a substantially lower tax charge for the shareholders, when compared to tax charged on income, especially if Entrepreneurs Relief can be claimed. In cases where distributions to shareholders are made via a MVL, the 25,000 restriction on capital distributions doesn t apply, potentially saving shareholders considerable amounts of tax on larger distributions. We worked closely with the group s accountant to wind up the companies efficiently, dealing with all closure matters appropriately and ensuring that the distribution of surplus cash to the shareholder was made in a timely manner. The benefits The CVA preserved both the company s business and the jobs of its staff Creditors received a greater return than in the case of liquidation The landlord continued to benefit from rental payments Ongoing trading relationships with suppliers were maintained Personal guarantees provided by the directors to the landlord and secured creditors were not called upon The business was given the opportunity to recover and flourish over the long term. The benefits Substantial tax savings for the shareholder: in this case, the distribution to the shareholder also qualified for Entrepreneurs Relief so the tax rate applied was just 10% Swift distribution of shareholder funds The MVL process involves advertising for creditor claims. This limits the risk of a creditor accidentally remaining unpaid. If the company were to simply be struck off, any unpaid creditor would have a number of years to apply for the company to be restored and thereafter petition to liquidate the company through the courts, which would result in criticism of the director(s). Bailey Ahmad offers expert advice on Members Voluntary Liquidation and related issues. If you or your clients would like more information, please call Paul Bailey or Tom Ahmad on for a confidential chat or a free consultation.

6 coming up... In the next issue of reins our topics will include: Members Voluntary Liquidation the steps involved The advantages of Creditors Voluntary Liquidation over Compulsory Liquidation If there are any subjects that you would like to see included in future issues, please Tom Ahmad at who s who at Bailey Ahmad? Founded by Paul Bailey and Tom Ahmad in 2007, Bailey Ahmad is a growing team of approachable and highlyqualified professionals, dedicated to providing a sensitive service for those in financial difficulty. In this issue we invite you to meet director Paul Bailey and our new team member Chloe Fortucci. This Bailey Ahmad newsletter is printed on Cocoon Offset 100% recycled 250gsm paper, made from 100% genuine de-inked post consumer waste. contact us Beckenham t : f : b Croydon Road Beckenham Kent BR3 3PS Guildford t : f : Cathedral Hill Guildford Surrey GU2 7YB Kings Hill t : f : Kings Hill Avenue Kings Hill West Malling Maidstone Kent ME19 4AE Enquiries t : e : info@baileyahmad.co.uk Accreditation Bailey Ahmad is licensed and regulated by the Association of Chartered Certified Accountants and is a member firm of R3 - the Association of Business Recovery Professionals. If you think any of your clients could benefit from our insolvency or recovery services, please call Paul Bailey or Tom Ahmad on in confidence. Meet Paul Bailey Paul grew up in Upper Norwood, South East London, with the ambition that many others also share of one day starting up a business. After finishing his O Levels in the late 1980s, Paul immediately found a banking job in the City before joining a West End trading firm that was to go bust a year later. Following a summer spent temping at various London firms, Paul joined the corporate recovery team at Deloitte, where dealing with insolvency became a key part of his role. Thirteen years later, he took the knowledge and experience he d gained to work for a specialist insolvency practice where he met and worked with Tom Ahmad, now his co-director. In 2005 Paul and Tom embarked on their insolvency licence exams and after learning that they had both passed, Paul and Tom Introducing Chloe Fortucci After completing her sixth-form studies of Business and Maths, Chloe commenced an apprenticeship with Bailey Ahmad, which included studying for an NVQ in business administration. Upon successful completion of her apprenticeship in the summer we were pleased to offer Chloe a full-time role as Case & Support Administrator. Outside of work Chloe enjoys socialising with friends and listening to music. laid plans to set up their own recovery and insolvency practice, Bailey Ahmad, which launched at the beginning of Like most new business owners, Paul worked night and day during the first two years. Now that the practice is not only established but going from strength to strength, he is able to spend his weekends with his wife and three young daughters; a four-year old and year-old twins. Yes - he has achieved a lot in a very short space of time! If there is any spare time, Paul enjoys watching football, playing golf (badly this year) and eating out. Whilst we have made every effort to ensure that the information contained in this newsletter is both accurate and current, it is intended for guidance only and does not comprise formal advice. Please contact us for professional advice regarding your specific circumstances before taking any action.