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Time to pay applications getting rejected by HMRC

In figures released today the HMRC are rejecting more applications for time to pay deals to defer tax, VAT and PAYE being the most common taxes that are in arrears by companies. The figures show that the percentage of applications being rejected had risen from 2.6pc in 2009 to 5.2pc this year.

If you need a time to pay deal then you need to present a strong case to the HMRC that you are a viable business. If you can't pay your tax then you may be technically insolvent and as a director then you should act reasonably.

Remember, if the company is insolvent you must act to maximise creditors interests.

If there is no reasonable prospect of the following happening:

New or additional capital or finance being introduced to the business to return the balance sheet to a solvent position or to remove the cashflow pressures.

A sale or acquisition of the company

A company voluntary arrangement CVA or administration

then the directors may be accused of wrongful trading. If you are worried about this or your accountant has said he/she is concerned then look carefully at directors disqualification.

Suits You CVA Fails and Ill informed Views on Pre-Packs and Company Voluntary Arrangements

An article in the Independent today seems to question the validity of the company voluntary arrangement (CVA) mechanism, because a well publicised retail CVA has failed.

Suits You (Speciality Retail Group Ltd) entered administration yesterday after the CVA proposed by the company in March 2010 collapsed. James Moore writing in the Independent Business section calls it "get-out-of-jail (almost) free route". His earlier comment that "the brutal truth is that this was a business that was simply not up to scratch" is much more accurate.

CVA's are not a panacea, but they're the most flexible way of keeping a business afloat, while returning dividends to creditors, maintaining employment and restructuring loss making elements of a company. But the fundamental issue that needs to be addressed by journalists is not whether CVA's. administration, (pre-pack) or liquidation are appropriate tools, these are fixed by a very complex web of legislation over decades; no, the real point is that turnaround experts and insolvency practitioners don't cause bust businesses. Management does.

In all CVA's the issues that caused the business to break down MUST be addressed. Change management or change management is our basic views. If the business is to survive the rigour of the insolvency process, management needs to be strong, determined and willing to learn from mistakes and to change. The CVA scheme itself should set out why the creditors might support the CVA restructure, what changes have been made so far and what the change plans are for the future. Why should creditors support the management team in other words.

Without being too critical of a fellow CVA expert, I personally don't think the Suits You CVA went far enough to change the business. Our research showed that something in the order of 20 factory outlets were performing well, with turnover related rents. The high street chain of c45-50 stores was burdened with high fixed rents. The CVA scheme only reduced these rents by 40% for up to 18 months, after which they could be closed. In my experience, retailers always over estimate future sales and margins. So, in my opinion, the loss making (at operating level) high street chain should have been been closed down in March 2010; the smaller leaner factory outlet business would have been left with turnover rents and flexibility. In addition the suppliers and tax creditors should have been compromised.

Simply using a CVA to hammer the landlords isn't equitable in our view. How can it be fair to penalise one class of creditor whilst allowing all other aged creditors to be paid? Having said that, the brilliance of the CVA mechanism, when understood, is that it is very flexible and the law is not minutely prescriptive on the scheme construction. Many of our clients have heard me say, "propose a deal and if the creditors approve it, you have a deal", meaning as long as 75% of the creditors support a scheme whatever it sets out, then the scheme is contractually agreed.

One swallow does not make a summer and a failed retail CVA is not a meaningful statistic; a number of retail CVA's have been very successful recently, witness Blacks Leisure plc. In that scheme the non performing stores were quickly closed and the cancer of failure treated aggressively. That company is now attracting bids. JJB Sports plc exited its 2009 CVA in early 2010.

KSA restructured a well known London design & furniture retailer earlier this year, 5 stores were closed, the warehouse operations outsourced, the MD stood down and new experienced retailers recruited to help run the company. Time will tell of course whether that CVA is successful. Perhaps people will criticise our work if that fails. Its the nature of insolvency and turnaround, some rescues work, some don't.

Finally, and almost gratuitously, the journalists lapses into lets lash out at the fat rich accountants who "stand to pocket a fortune in fees, so what do they care"? Well my normal response to this facile observation is that we didn't get the companies that we work with into trouble. Expertise, experience qualifications and strong minds are required to fix them or bury them. For that and sheer bloody hard work, we should be well paid.

Leisure and Gaming plc ( update )

I can confirm that Leisure and Gaming plc's administrators are Philip Watkins and Geoff Rowley of FRP Advisory.  The firms subsidiary Betshop Group (Europe) Ltd has been sold as a going concern to Honeymead Services for €1m safeguarding jobs for over 600 agents throughout Europe.  However, this is only a fifth of the amount agreed in principal a month ago to Pefaco.

Administration for Leisure and Gaming plc

The AIM listed company Leisure and Gaming plc will have its shares deleted with effect from the 1st November 2010 following the appointment of administrators. Shares have been suspended since May of this year to give the business time to resolve its cashflow problems. The company has been trying to sell its Betshop (Europe) Group Limited subsidiary but without success.

In a statement on the 11th of October the company said; “ Following demand for repayment by the company's bankers on 6 October 2010, the company is working to see if a solvent solution can be achieved avoiding administration,”

So again it looks like the bank has forced the issue. I do not have any more information on who the bank or the administrators are at the moment, but will let readers know as soon as I can!

Read this blog for breaking stories on businesses in administration.

Recruitment firms in financial difficulty

Turnover in the UK’s recruitment industry dropped by more than 12% to just under £20bn in the year to March 2010, according to the Recruitment and Employment Confederation (REC) annual industry report.

With hundreds of recruiters in time to pay deals with HMRC, according to Begbies Traynor's Red Flag Alert, KSA Group is seeing a marked increase in enquiries from the recruitment sector. We have successfully turned around over 20 recruitment firms including a £3.5m turnover Scottish based recruitment business.

To enable recruiters to learn quickly all about the many issues and options to restructure their business, KSA has launched a unique 96 page guide to turning around or restructuring your struggling or insolvent recruitment company.

HMRC to collect tax arrears more vigourously

In a recent article in Insolvency Today. Nick Lodge, director of debt management at HMRC has said that they are not here to support non-viable businesses, they are tax collectors! So that has cleared that up then.

Many businesses have been able to spread out their arrears of tax under the time to pay scheme. It looks as if this will not be so easy from now on.

Further details of the interview and how it is relevant to businesses can be found on our HMRC news pages.

Administration looms for Maypole Group plc

In a Stock Exchange announcement this evening Aim listed Maypole Group Plc said that its bankers Clydesdale Bank plc had demanded repayment of all its loans to the company. Accordingly, the company is in discussions with the bank with a view to appoint administrators. In a strange statement to the exchange it appears that the rebranding exercise for the business precipitated its problems.

Maypole group were set up as an acquisition vehicle for the purchase of luxury hotels. In February 2004, the Company raised £607,798 by way of a private placing to assist with its first acquisition, which was the 32 bedroom Wroxton House Hotel in Banbury. Hotels in their ownership also include the 15 bedroomed Wayford Bridge Hotel in Norfolk

So again, it looks as if the banks are getting tougher on companies as part of trying to draw a line under the credit crunch. Take a look at our page on the banks view. If you get any of these warning signs then you need to act. The bank is a secured creditor and they can appoint administrators if they have a debenture.

GDP figures better than expected

The GDP figures are better than expected and have surprised the markets. The pound rallied and George Osborne let out a sigh of relief!

The one thing to come out of this is the sudden activity of the construction sector in the third quarter. Perhaps they increased their productivity in order to get jobs finished or properly started before capital spending by the government was cut back. However, the government has started a national infrastructure plan so at least they recognise how important construction and maintenance is to the UK economy.

An improving construction sector is good news but it is not out of the woods yet. Businesses will need to keep a close eye on their cashflow.

If you need any advice on your construction business then please do not hesitate to give us a call. You can view on our website how we have rescued construction businesses in the past.

CBI Conference Today

The CBI conference has started today and it is attracting much interest.  No doubt because the private sector is expected to pick up the slack left behind when the government reins in its spending.  The hope is that the conference will give an indication as to how private business is expecting to create 500,000 new jobs over the next 4 years.  Another draw is that David Cameron, this morning,  is to address the conference and outline his new vision for the UK and hope to talk about growth. 

We need some optimism here!

In order for companies to grow they must remain flexible, have a good eye on cashflow, and not be weighed down by red tape.

Scottish insolvency figures improving

The second quarter statistics on Scottish insolvencies have been published by the Accountants in Bankruptcy (AiB). Interestingly the overall number of insolvent companies has gone down by 19%. The exception to the rule has been there has been a rise in the number of creditors voluntary liquidations of 17%

Running a business in isolated rural areas can make you more susceptible to a downturn in the economy. This could be due to a less diverse customer base, or the difficulty in retaining and recruiting staff.
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