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Avoid Insolvency with an informal arrangement with creditors

If you can't pay your debts, as and when they fall due, then perhaps you can extend the period over which they become due by agreement.  This is an informal deal, whereby the creditors of the company agree to extend the payment terms over 12-18 months.  So in effect, a time to pay plan.  Of course, you will need to pay 100p in the pound but the extra time can save the company. 

This informal deal we have called Plan A -.  Read our page on informal turnaround and Plan A

Blogged by Robert Moore

Creditors Voluntary Liquidation Flowchart from KSA Group

You have a company that is no longer viable and has debts to HMRC and perhaps trade creditors. You are worried about personal liability if you continue to trade.  The solution could be a creditors voluntary liquidation. 

Step 1 – Find a Liquidator. We can help as we have a number of insolvency practitioners. Uniquely to KSA Group, YOU can speak to one of our IPs TODAY, if you call now on 0800 9700539. It is not possible to liquidate your own company, as the law just doesn't allow it.

Step 2 - Pass details of any company assets over to the proposed liquidator, and our valuers may get these valued. This will independently set the value of the assets for going to auction, or you may wish to buy them.

Step 3 – Let us know who the company owes money to (creditors). KSA will write to them all to let them know what’s happening and tell them that a creditors meeting will be held. This will quickly remove creditor pressure from YOU and they will start talking to KSA instead!

Step 4 – Give us all company information and books and records. KSA will give you a list of all the information we need in order to liquidate your company. This information will allow us to prepare the necessary reports for the creditors.

Step 5 – A company director needs to "chair the meeting of creditors". In actual fact the liquidator will run the meeting but you or one of your directors must attend it by law. The meeting of creditors is usually a simple short meeting with no one attending.

http://www.companyrescue.co.uk/creditors-voluntary-liquidation


Portsmouth CVA approved

In contrast to the fate of Glasgow Rangers, the CVA proposal by the administrators for Portsmouth FC, has been approved with the unsecured creditors getting approximately 2p in the £1.  HMRC voted against the CVA which is usual in football cases.  To see why read our page on the football creditors rule. However, overall the proposal was approved by 95% of the creditors.

The company voluntary arrangement is based on an offer from former owner Balram Chainrai's company Portpin. Portpin is offering to settle outstanding wages for part-time club employees (prior to it entering administration), and debts owed to charities as well as small local businesses owed less than £2,500.

So what next?

The Company Voluntary Arrangement was approved but with modifications.  The modifications can be insisted upon by the creditors and these were that the administrators had to continue to negotiate with other parties interested in making an offer.   The Pompey Supporters Trust had tabled an offer last Friday and the administrators at PKF are due to meet them this week.  Another condition of the CVA proposal was to restructure the players cost base.

Of course, all CVA proposals have conditions that need to be met and cutting costs to improve performance is a sensible and necessary one.

Company debts dragging your business down?

Many businesses are doing better since 2008 but all the while they are being held back by an historic debt.  The reasons for the debt may have disappeared or the problem that caused it may have been sorted.  However, it still makes its presence felt but making it hard to arrange new finance and generally draining cashflow. In some high profile cases recently we have heard about companies such as Fitness First and Clinton Cards that have had 100s of milllions of pounds worth of debt.


KSA Group can help companies by using rescue techniques such as CVAs, pre-pack administrations, trading administrations.  We can also negotiate on your behalf with HMRC to arrange time to pay VAT, PAYE and other taxes.


Have a look at our page on company debt which highlights a number of reasons why businesses find themselves in debt and what can be done about it.

Camelot Healthcare in administration

Camelot Healthcare, the operator of four Cheltenham care homes, has fallen into administration leaving up to 60 jobs at risk.  However, but the administrators at PKF accountants have said that they should remain open but with some redundancies.  The firm runs the Broadleas, Dalkeith, The Hawthorns and Pinehurst homes.

Krissimon Care are to run the homes which have 79 beds between them until a buyer can can be found.

The joint administrators said that all residents, staff and relatives had been notified and would be kept fully informed.

Carehomes have been in the spotlight not too long ago with the collapse of Southern Cross.  Many operators took on too much debt in the boom years and found themselves in difficulty when the local authorities started to reduce the amount they were prepared to pay for beds.

Judge in Farepak case rules that directors were right to keep trading

In an interesting opinion regarding the collapse of Farepak the Judge in the case against the former directors brought by the Insolvency Service, he has come down on the side of the directors saying they did everything possible to try and find a solvent solution whilst still trading.

This follows the dropping of the case by the Insolvency Service against the former Farepack Directors.  Of course, the savers in the scheme are rightly upset that no one has been brought to book over the affair but their ire may now be directed at HBOS who came in for some very strong criticism by the Judge.  This is what he said; "The directors efforts failed over the period between March and October 2006 on the flinty ground of HBOS, which had a policy of playing hardball, of which it appeared to be proud, and conceding nothing,"   The full statement of the Judge can be found below.

http://www.judiciary.gov.uk/judgments/farepak-judges-statement/

HBOS refused to extend the overdraft and forced the directors to continue trading and collect deposit even though it looked like it there was to be an insolvent solution such as administration or liquidation. This did not impact upon them (the bank) as HBOS had its overdraft of £40m to the company secured so it would be fully repaid in the event the firm went bust. 

The directors tried to find a solvent solution but ultimately the banks action forced the company into administration.  It goes to show that in hindsight it is easy to say "Oh you should have just shut down to stop the creditors position getting any worse." It is often not as simple as that. 

What can we learn from this episode?

Importantly, it shows that the company directors, and their advisers, should always consider ALL the options and this may be to carrying on trading and do a deal with creditors, renegotiate contracts, cut costs and drive more sales.  Some insolvency practitioners look at administration and liquidation as the only options and ignore other rescue mechanisms such as informal arrangements and company voluntary arrangements.  A CVA may not have been appropriate in this case but administration or liquidation didn't solve the problem. for the unsecured creditors. The bank obviously played hard ball and recovered most of its debts but to the detriment of the savers in the scheme. It will be interesting to see if the bank coughs up the £10m extra contribution that the judge suggested should be paid?!

Fitness First CVA Approved

Now there is a more realistic CVA than the one which was proposed for Rangers!  Fitness First's  CVA proposal has been approved with creditors accepting 28p in the £.  The administrators said that the likely return in administration would have been 0.5p!

Approval of the CVA will also see lenders convert their debt into shares in the business once the restructuring programme is completed.

As we previously blogged the chain will see 67 of its gym's moved across to other operators and the remaining stores will get a 55% rent reduction across its remaining locations for 6 months whilst this transition is being completed.

This sounds like a good deal for Fitness First and again shows that a good CVA will get approval if it is realistic and fair. 

Gym operators have seen their margins squeezed as budget operators come to the market and customers cut back on subscriptions.

Inflation rate falls to 2.8%

The inflation rate has fallen to 2.8% from 3.1% as the fall in oil prices and the dropping out of VAT rises are taken into account.  This is welcome relief for hard pressed consumers in the face of lack lustre wage growth.  However, much of the fall has been the result of the Eurozone crisis which has meant that there has been downward pressure on oil prices as worries persist about the strength of the global economy.

These lower than expected inflation figures will also strengthen the case of further quantitative easing by the Bank of England to try and stimulate the economy. 




Olympic Torch passes through Berwick Upon Tweed the hometown of KSA Group

Staff at our head office in Berwick upon Tweed got some deserved time off to see the Olympic Torch pass through the town.  

One of the torch bearers was Josie Goodfellows who is in the Netball club with our corporate advisor, Marie Moody (pictured with her daughter and the torch!)


The time has come to stop moaning about the traffic chaos, tickets, VIP lanes and let's look forward to the biggest sporting event in the world.  Go Great Britain!

Graydon Insolvency Predictor predicts flat insolvency levels

The credit referencing agency Graydon has predicted a flat rate of company failures in the second half of 2012 but warns that certain sectors are likely to have elevated levels of insolvency. The Graydon Insolvency Predictor says that it expects the number of company liquidations to increase by only 1.4% from the rates seen in the first half of 2012. But the figures will show a fall of 4.8% in the period when compared to 2010. However it goes on to say that the projected failure rates in retail, construction, and real estate will go up between 2% and 5%. This is not surprising given the state of the economy and confidence.

Construction is going to be hit harder later in the year as more Government projects are coming to and end and the pick up in demand from the private sector is not materialising. Retail is going to continue to suffer for reasons that we are all familiar with. However, an increase in vacancy rates will further compound the problem as footfall is affected given the lack of choice that the high street or shopping centres give.

In practice, this means that companies in construction, retail and real estate are 2.6 times more likely to collapse in the present market than those in the other sectors covered by the data, including such support industries such as those providing accounting, marketing and project management services.

So given the difficult state of the economy how come more businesses are not going into liquidation?

Reasons

  1. Lack of pressure from HMRC and Banks
  2. New companies not taking market share from existing providers
  3. "Zombie companies"with historic debts kept going due to point 1
  4. A period of stagnation and inaction as a result of uncertainty in global economy.

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