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Partnership Overdrawn Current Accounts

For limited companies, overdrawn director's current accounts are a common problem when facing an insolvency situation.

To recap, an overdrawn current account is when a company stops making profits but the directors continue to take out drawings which will be later voted as dividends, so effectively owing the company money until the dividend is voted.. Efficient and correct in good times for a company, but this approach can cause problems when losses are made, there are insufficient reserves to cover the dividends and directors can find themselves with personal liability problems.

What about partnerships then?
Partnerships of course have their own tax benefits, but if the partnership has not been making any money and there are overdrawn current accounts, then the unique situation arises where the partners are joint and severably liable for the account. In an insolvent situation this could be very damaging on top of the personal liabilities of the partners to the creditors.

In a limited liability partnership the partners will not be joint and severably liable for the overdrawn account but it will be, in effect, the same as a directors overdrawn current account. So in an insolvent situation the same rules apply. An LLP will not offer complete protection against creditors and we have blogged on the subject before on what you need to know about limited liability partnerships

So for a partnership what are the Solutions?

Well, options include:

Repay the debt you personally owe to the company.

Offset any loans the partners have made to the company (this is called set off).

Make a lot of profits in future periods to offset it!

A company can use a Company Voluntary Arrangement to reverse the current year directors drawings into the PAYE Scheme if there are insufficient reserves to pay a dividend. However, for a partnership that may not operate a PAYE Scheme this is not possible. A partnership voluntary arrangement or PVA may be an option, which will allow the partnership to continue to trade with money owed to creditors paid off over time and the partners will need to pay off the overdrawn account as they are in effect debtors of the partnership.

What happens in a winding up of a partnership if there are overdrawn current accounts?

In any liquidation the liquidator can demand that partners repay their overdrawn current account to the partnership for the benefit of the creditors. They can take legal action to make partners pay this or even make them bankrupt.

So, partners may be at risk of losing their home if their current account is overdrawn and not recovered.

The important thing is to take advice on this matter from professional advisors before it becomes an unsurmountable problem.

Yellow Pages Winding up Petition?

Will Hibu, the oddly renamed  former "Yell", formerly "Yellow Pages" (confused!)  survive?

It is according to the FT, facing threats of a winding up petition from creditors who were to be paid £65m this week. This 6 year old debt is probably unsecured and therefore the debt holders have few options, but to threaten the blunt winding up petition approach

Should Hibu be wound up? Well we don't know the intricacies of the £2bn - yes two billion - of debts it is carrying, but one thing is probable. If the company is served with a winding up petition, then the secured debt and bond holders may appoint an administrator.

As so called zombie companies go, this would be a massive failure and one that would hurt a great many banks.

Could bankruptcy get you out of paying maintenance following a divorce?

A case is going through the courts at the moment, where a former company boss, who has been declared bankrupt, is arguing that he should have his debts to his ex-wife wiped out too. His divorce settlement gave her the family home, and £500,000 in installments. So far she has received £211,000, and he says that should be enough.

If he wins, it could have far-reaching effects.

Alexander McRoberts, aged 54, of Datchet in Berkshire was divorced in 2003. He fell into financial difficulties shortly afterwards and was declared bankrupt in 2006. This was discharged in 2007, but Mr McRoberts is arguing that the bankruptcy should have cleared the debt.

His lawyer has pointed out that he is not in a financial position to repay the debt. And that his ex-wife, Mandy McRoberts, is a company director in a £500,000 home in Windsor, which makes her considerably more financially comfortable than her husband. He also says that if the debt still stands, Mr McRoberts is concerned that he will have to declare himself bankrupt again.

Mrs McRoberts has argued that £349,000 is still outstanding from their divorce settlement nine years ago. Her lawyer has highlighted that if the court finds in favour of Mr McRoberts, it will create a legal loophole, which would enable spouses to dodge their responsibilities through bankruptcy. He said it would mean "opening the door to all the bankrupts out there who don't want to pay their lumps sums in family proceedings."

The impact
The judge said: "I don't want to do anything that suggests that so long as you go into bankruptcy that is the gateway to avoiding the family court's orders. There are lots and lots of husbands and wives who are company directors."

However, he added that there may be an argument that the bankruptcy court could take the changing needs of both parties into account - and that the case "raised some curiosity as to the relationship between the bankruptcy jurisdiction and the family jurisdiction."

He added that the case needs further consideration, and the decision has been reserved for a later date.

Bowen Travel Group in administration

Update 26/10/2012;  It has been confirmed that the Boden Travel Group has gone into administration and all staff have been made redundant.

The Bowen Travel Group has 38 travel agencies across the West Midlands, Lincolnshire and Northamptonshire. It also operates three coach holiday brands - Bowen's, Appleby's and York's - under umbrella brand BGT Travel.

It is understood that Deloitte have applied for an administration order.  The website has been suspended and all staff were told that the business was in administration. according to the reports.

A Deloitte spokeswoman was unable to confirm its involvement at this stage.

If you are an employee of the business then you can refer to our help for employees pages but please do not call our office.  Any holidaymakers should direct their enquiries towards Deloitte.

UK " out of recession " if ONS is to be believed.

No wonder that David Cameron could not contain his excitement after seeing the GDP data and let slip that "good news was on the way".  After an "Annus Shambolicus" for the Government this is a great news.

Britain left recession in the third quarter after posting its strongest quarterly GDP growth in five years!  Official data released today showed that the economy grew by 1%.   That is 30% more than the most optimistic economists were predicting.   The Office for National Statistics said Britain's gross domestic product rose by 1.0 percent between July and September after shrinking by 0.4 percent between April and June. On the year, the economy was flat.

 Of course, there is the usual comments that these figures contain one off events like the Olympics and an extra day working etc etc but overall it is still a better picture.   Industrial output was 1.1 percent higher, the strongest rise since the second quarter of 2010. Construction - which accounts for less than 7 percent of GDP - contracted by 2.5 percent.

 Other indicators have pointed to an improving picture.  The Markit's purchasing indexes have shown an improvement, unemployment has been falling, retail sales have been improving and the insolvency rate has been falling.  

 Now wait, that last one, the insolvency rate, is an interesting one.  Historically, if the economy improves after a recession then the insolvency rate actually rises....

Why is that?  Simply because creditors get tougher when they think there is a better chance of getting the money and banks look to call in loans when there is a market for assets if the business cannot survive.  Also if they want to lend to a growing company they will need to stop lending to a failing one.    Finally there is the issue of overtrading.  This is when orders are made but the money from customers is not called in fast enough to fund the expansion.  

Barkley Alexander and Associates Limited in Liquidation

KSA Group, the authors of www.companyrescue.co.uk, always watch our space for competitors.

The internet has low barriers to entry and companies can make all sorts of claims. So it is interesting to see an advisor, BARKLEY ALEXANDER & ASSOCIATES LIMITED, advertising on Google as www.barkley-alexander.com  have actually gone into liquidation as of 17th October 2012.  So who is paying for the website and the online advertisements and why?

BEWARE of companies that claim to offer all sorts of easy solutions like CVA for debts of just £15,000 - Check them out first. Are they regulated, licensed and experienced? Then look at their testimonials, can they give you referees?

Here is a quote from their website.

Do you want to write off 100% of the current companies debts?
Do you want to ‘buy back’ the companies assets?

The fact that they can’t write good English ( err company’s perhaps)  should be a warning!

CAVEAT EMPTOR - buyer beware. These claims are misleading and may be dangerous for your company in difficult times.

Given that they are actually in liquidation DO NOT PAY anything over until they have done a job of work!

Always seek out good practitioners.  They should have a clear address, location, pictures and bios of people who work for them, and genuine testimonials.   They should also NOT be in a insolvency mechanism themselves!

Electrical services company issued with winding up petition but survives using a CVA

An electrical services contractor, working in the industrial and commercial building and construction sector based in Kent saved by a Company Voluntary Arrangement.

The director contacted KSA Group after reading the website.  A meeting was held between the director and KSA Group regional manager on 6th August 2012.

KSA Group were appointed to assist the company on 10th August 2012. The company encountered financial difficulties because of considerable sums owed by two main contractors. The company was owed c£85k in certified payments and some of the debtor days exceeded 16 months. The director had cut costs prior to KSA Group's appointment via one redundancy. However, a winding up petition was issued by one of the trade creditors.

Find out what happened by reading our CVA case study

Manganese Bronze the London black cab maker has filed for administration

London black cab maker, Manganese Bronze, has filed an intention to appoint administrators.

In a filing dated today the firm announced: “that discussions with various parties to secure funding on acceptable terms to address the Group’s financial needs have proved unsuccessful. The Board has therefore concluded that the Group is no longer a going concern and has filed notice of intention to appoint administrators.”

The difficulties mostly stem from a production problem that resulted in a fault with the steering column of the car.  This has meant that as many as 400 cabs had to be recalled.  The firm had been hoping for an injection of £15m from the Chinese car-maker Geely, which would have transferred production to China.  For the first six months of 2012 the firm recorded an operating loss of £3.1m on revenues of £34.3m. In August it revealed it had understated past losses by £4.25m.

However the filing does state that they think the business has a viable future.  This is at some odds with the company's opening statement.  

So what has happened?  
It is possible it faced a winding up petition that would have meant that the company would have been unable to trade.  However more likely it is viable if someone would inject £15m into it!  The failure of that money coming forward put it into an impossible position.

30 shops a day closing down

According to research by PWC and the retail data provider Local Data Company (LDC) shops on the UK high street are closing at a rate of 30 a day in August and September.

High-profile administrations such as Game Group, Peacocks, Past Times and Clinton Cards helped push the number of closures of town centre chain store outlets to 953 in the first half of the year.  This compares with 174 in the whole of 2011.

The changing face of town centres can be seen by looking at which types of retailers are doing well.  There are 7% more discount stores in the UK  the first six months and  11% more payday loan outlets, and  8% more pawnbrokers....  The lack of expansion plans by the more established retailers has also been blamed in as one reason the High Street is floundering.  Expansion plans need the banks to lend and they have not been keen to do this.  Especially since some well known brands such as HMV are heavily indebted.

Despite these figures the vacancy rate has remained fairly stable at 1 in 7 and this in part has been helped by new independent shops opening.  However, they tend to pick their spots and so some parades can decline quite rapidly.

The most common factor that the large multiples have is that they have too many shops that were opened during boom times and are stuck in long leases at relatively high rents.

However even for smaller multiples there is a way out.  A Company Voluntary Arrangement or CVA can help a retailer close down stores that are dragging the whole company down.  Read our page on retailer CVAs

Zombies and Company Rescue feature in the Telegraph Business Supplement!

Business Turnaround Experts featured in the Daily Telegraph.

Please read the supplement by clicking above. This flat lining economy has resulted in thousands of businesses that are carrying large debts, no growth or declining sales but are managing to continue to trade. Good people are tied up in these unprofitable companies that means that other more lean companies are having to work harder says John Moulton of Better Capital. This situation is not helping the economy recover and grow.

Mild cashflow problems? Serious threats by creditors? Winding up petition threats from the tax man? 
It is, in our view, an abdication of management responsibility not to ACT when the pressure is building.  Hence the lack of confidence that banks may have in the board.

When pressure from creditors starts to mount and the threat of legal action comes along, then there is a powerful alternative to terminal insolvency.  Keith Steven writes that a company voluntary arrangement is often the best option for companies that are struggling with debts and need to stop firefighting and allow the turnaround to get under way and allow existing or new directors to get on with running the business.  Read the Telegraph article here

Of course, business turnaround needs more than just a single mechanism like a company voluntary arrangement but also the need for turnaround experts in finance and operations.  Management often need to change and they should use tools like daily cashflow forecasts, get up to date financial reporting from experts like Insight Associates, also featured in the supplement and set out a recovery plan with stakeholders such as banks, employees, creditors, investors and shareholders. Often it is necessary to bring in interim managers to help them move forward.  KSA Group has close connections with experienced quality people who can help in this regard.

Phone us on 01289 309431 for details.
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