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Is the CVA mechanism underused in Scotland

Is the Insolvency Mechanism the Company Voluntary Arrangement or CVA underused in Scotland

– A Technical CVA Seminar

The total number of CVA’s filed in the UK is around 600 - 700 every year. In Scotland it is around 6 pa. We normally do 4-5 of them! CVA’s allow a company to continue to trade by cutting costs quickly, can save jobs and in most cases gives a better return to creditor than an aggressive liquidation or pre-pack.

KSA Group propose the highest number of CVA’s in the UK and we have a success rate of over 90% creditor approval. As such, we would like to involve Scottish professionals in promoting this excellent rescue technique.

The advantage to corporate advisors, accountants or lawyers of the CVA mechanism is that of business continuation. Your client can still remain your client once they are in a CVA and not be taken over by an insolvency practitioner which would be the case in administration. Also as a condition of all of our CVAs, monthly or quarterly management accounts are requiredto be produced to the CVA Supervisor, will provide additional work for your firm. We will also need help in putting together the forecasts in a CVA which is work that KSA Group will pay you for.

Being blunt, as this seminar will be the first of its kind in Scotland we are looking to gauge interest . If you would like to attend then please call Robert Moore on 07584 583884 or email robertm@ksagroup.co.uk.  All attendees will receive a full course manual and our unique USB online insolvency toolkit free to take away which in itself is worth £99.

Location: Edinburgh Training Conference Centre

Date: October 12th 2011

Time: 4.30-7pm

Cost: £25+VAT to include canapés and drinks

Creditor of a football club?

The following question was published in the Financial Times on 23 July 2011 and answered by Richard Curtin, a lawyer in the London office of Faegre & Benson LLP.

"I run a food and drinks company supplying products to football clubs. But we recently heard that one of the clubs we supply will probably go into liquidation very soon and we are concerned that we may not receive the money we're owed by it. Is there any action we can take now to make sure we are credited if and when the club becomes insolvent?"

The first step is to ascertain the terms of the contract between your company and the client, to check whether they are written, both written and oral, or whether they are simply a continuing trading relationship.

I am assuming that you are a creditor of the club, the outstanding debt is payable now, and that your company is an unsecured creditor. If so, the problem your company appears to have collecting the debt is the shortage of time and the fact that it is an unsecured creditor.

Consequently, the first practical step would be to consider applying a harder form of credit control: insisting upon payment in full now, combined with payments upfront for future supplies. But this may be impractical for commercial or other reasons.

You could instead try to insist upon personal guarantees from the directors – although I suspect that you won't get them. This leaves you with the unclear option of serving the club with a winding-up petition, which should concentrate the minds of the club's directors.

If you do obtain payment of the debt, a subsequently appointed liquidator may try to recoup this as a preference. If the club does go into administration, administrative receivership, liquidation or company voluntary arrangement, the debt is not automatically excluded but I would expect it to be diluted – due to secured claims, costs and expenses – to less than 20p in the pound. I would therefore suggest hard-nosed credit control followed by consulting your solicitor with a view to presenting a winding-up petition. Make sure you move quickly.

This advice is interesting but, in our view, it is unlikely that if a winding up petition is issued and the petitioner is paid then a subsequent liquidator would move to recoup this payment as a preference.

Ultimately you need to act to ensure that you get paid.  If it is putting undue pressure on your business then give us a call we might be able to help.

Recent Insolvency Statistics

Following on from our earlier research on administrations more statistics are coming out that indicate that overall fewer businesses are going insolvent.    England as a whole saw a 13% Q2 year-on-year decline in administrations at 533 companies, which is the lowest level since Q4 2007.  Certain areas are performing better than others with the Midlands seeing a 30% decline in the overall numbers of business going into administration.  Of course, administrations are not the whole picture with liquidations being the commonest insolvency procedure.  Some research has been done by the FT that found that company dissolutions were at an all time high in percentage terms indicating that many businesses might be just shutting down perhaps with some small debts.  There is no doubt that many companies are holding on and a low interest rate environment and a relatively benign approach by HMRC has helped then to continue to trade. 

According to insolvency trade body R3, their research found the retail sector and the smallest companies are

suffering the most.   Almost 1 in 10 retail businesses said that they are “very likely” to go into insolvency in the next 12 months.

The number of businesses worrying about their debt levels and insolvency fell to its lowest level for a year. R3 found 41pc of businesses said they hadn’t experienced any signs of its 13 key “distress indicators” over the last quarter, compared to 28pc in the previous quarter and 25pc last year.   There are of course lots of distress indicators.  Take a look at our list of warning signs of a distressed business.  Meanwhile Begbies Traynor's Red Flag Alert has been highlighting certain sectors and areas that are suffering increased levels of distress but the overall picture is not showing a major shift one way or another.

With the recovery being "choppy" it is likely that statistics will be very hard to make sense of quarter to quarter.  As such, we expect the year on year trend to be a more relevant indicator to the overall strength of the economy.

What is a statutory demand?

A statutory demand is a demand to recover a debt.  It is usually the precursor, following a County Court Judgement (CCJ), to issuing a winding up petition against a company.  Consequently, it needs to be taken very seriously.

See our new page on the significance of a statutory demand and what you can do about it on our website.

HMRC appoints debt collection agencies to collect tax.

HMRC have appointed ten debt collection agencies to pursue tax arrears.  This follows a successful trial last year.  The agencies will be charged with collecting about £1bn in taxes. 

Given that the agencies will only be paid on the amount that they collect it is likely they will be somewhat more forceful than HMRC.  This is going to be added pressure on businesses.  They are being charged with collecting older and smaller debts allowing HMRC to focus on bigger ones.  Either way the HMRC are serious about the need to collect VAT and PAYE arrears

The collection agencies are the following;
Advantis Credit, Apex Credit, Close Credit Management, Clanchatton, Hillesden, Fredrickson International and Rossendales, Commercial Collection Services, Fairfax Solicitors and iQor Recovery Services.

HMRC will send a letter out prior to referring the debt to the collection agency.  We strongly advise that any business that receives this letter should contact the HMRC and try and agree payment terms.  Payment terms may not be able to be agreed with the agency  We can help with this.  If a time to pay by HMRC  is refused then this does not mean that a CVA is impossible.  A CVA is agreed by a different department known as the Voluntary Arrangement Service or VAS who we work closely with.

Begbies acquires Invocas's Scottish case portfolio

Interesting news this week that Begbies Traynor plc has acquired the insolvency portfolio of Invocas Group in Scotland.

Given that Invocas Group plc has very recently delisted from AIM (delisting notice is here http://www.invocasgroup.com/docs/announcement_delisting.pdf) and the website seems to be diversifying AWAY from direct insolvency services to providing marketing support services to insolvency firms, this seems to be an interesting end for another listed insolvency firm?

As for Begbies it may be picking up the Invocas Scottish insolvency cases but we are not sure if they are picking up the staff?

Another related bit of news is that Begbies saw a £5m fall in profits to the end of the last financial year.

Personal debt becoming a problem in Scotland

The recent figures from the Accountant in Bankruptcy (AiB) report 5,319 personal insolvencies in Scotland in the first quarter of 2011.  This is slightly down on the same quarter last year but the main issue is that there has also been a marked increase in the number of Debt Payment Programmes awarded through the Debt Arrangement Scheme (DAS), up 35 per cent from the previous quarter and an increase of 30 percent from the same quarter of the previous year. The number of people opting for the voluntary protected trust deed to help write off their debts rose up by 51%.

Obviously personal debt problems will affect corporate earnings in the retail sector first but it

will eventually affect other businesses. 

It is certainly a statistic worth following.  Scotland has a high proportion of public sector workers and the full effect of the cuts have not yet been fully felt.

Marill Engineering in administration

I have been told by an employee of Marrill Engineering that the company has gone into administration and that it continues to trade as a going concern. This has been confirmed to me by the administrators at RSM Tenon on 0191 511 5000

Marrill Engineering is based in Coventry with a division in Gateshead and employs 169 people with a last reported turnover of £13m.  The company specialises in press tooling design and component manufacture.

There is no reason to assume that the business can't be saved or sold.  After all, the first aim of administration is rescue.   If the business is sold then TUPE does apply and the new owner will have to take on the employee contracts. 

If you are a supplier of Marill then you should look at our pages on how to protect your position here.

Fewer mid sized businesses becoming insolvent

Recent research has shown that medium sized businesses, those employing 50-500 staff, failure rate is 50% down from 0.17% of all businesses to 0.08% in the month of June compared to June last year.  Again, not too much weight should be given to one months figures but it is further evidence that the insolvency rate is going against the trend predicted by insolvency practitioners.  In actual fact the failure rate is significantly better than was the case in the last major recession at the beginning of the Nineties.

Building materials and building and construction were the industries that fared worst, with failure rates of 0.27% and 0.18% respectively.  The North West and Scotland have also seen a worsening picture.

So how can businesses minimise the chance of failure.  A few tips from KSA Group

  1. Be realistic.  - Optimism and confidence is an important trait in successful entrepreneurs but don't think that problems will just go away when the next contract comes in.
  2. Know your current financial position AND likely position - Forecast ahead
  3. Motivate staff to keep productivity high.
  4. Manage cash everyday
  5. Be open minded and take advice. 

Scottish Corporate Insolvencies Increase

Scotland insolvency rate went up by 17% in the second quarter, compared with the first quarter of the year, according to research by KPMG – with smaller companies really suffering.

There were 329 Scottish corporate insolvencies during the second quarter of 2011, compared with 282 in the first quarter of the year.

The statistics also show that the number of administrations and receivership appointments, which usually affect larger businesses, fell by 19% between April and June, compared with the previous quarter.  So this means a larger increase in liquidations.

There is not much of a rescue culture in Scotland as demonstrated by these figures.  But the main problem is there are very few CVA's done in Scotland.  In fact, we are going to be holding a seminar on CVA's in Edinburgh in the Autumn to try and  address this problem and educate professional advisors on the advantages of the CVA rescue mechanism.  If you are interested in attending then please email me robertm@ksagroup.co.uk.   A CVA gives the company time to pay back creditors and time to cut costs and return to profitability. 
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