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WAE+ Customers angered by new firms inability to fulfill orders

Last week we blogged that WAE+ had undergone a pre pack administration to a couple of its existing employees and that many customers had complained about not getting their orders.  Well, in a recent development the new firm  created, JM-limited.co.uk, has said that it is unable to meet or is legally required to fulfill any of the existing orders of the previous firm.    This has angered customers who are demanding action against rogue internet operators.  Advice is that you should buy with a credit card but the problem is that only purchases over £100 are covered so the protection is not as much as many believe.  With many more operators online this is becoming more and more of an issue.

The online retailer attracted hundreds of complaints from dissatisfied customers but despite this it announced a trebling of its sales which showed stellar performance by increasing to £4.48m compared to £1.4m in the previous six months.

Citizens Advice confirmed that online shoppers only have a contract when a good is dispatched, though are entitled to a refund within 30 days if it never arrives.

The firm said following record Christmas sales figures it had continued to build on its success and was now averaging over 6,500 customer orders per month.

The Sunday Telegraph did an investigation and found that amid growing fury and calls for action from shoppers, WAE+'s two directors Darren Cresswell and Ben Slater put the company into administration on September 2. The business and assets were immediately sold to two of the 14 employees at the Birmingham-based company, who paid a "significantly higher" price than expected.

So what happened?

We will have to wait to see the administration report but it sounds like the usual rapid growth story where the company has run out of cash trying to fulfill orders that are coming in thick and fast.  Perhaps financial controls were not adequate. Either way when companies are growing fast this can be a difficult time to manage cash flow.  Download our daily cashflow spreadsheet to help you avoid cashflow problems.

Keith Steven writes in the Business Turnaround Supplement of the Sunday Telegraph

Keith Steven writes in the Business Turnaround Supplement of  the Sunday Telegraph offering advice to the struggling lawyers.  

Here is the text.

The legal sector is in trouble. The introduction of the Legal Services Act has led to the option of forming alternative business structures (ABSes), meaning a number of distressed firms with failing businesses may be snapped up by larger players.

But as is customary in any marketplace, whenever you see consolidation, you also see failure. Businesses close down, other companies purchase distressed assets and a consensus between stakeholders is rarely reached. If the Solicitors Regulation Authority (SRA) thinks a firm is a risk to the clients, then it may instantly intervene. “Effectively the business dies there and then,” says Keith Steven, managing director of KSA Group.

“To put a company into liquidation takes three weeks, but the SRA can intervene in a flash – if they’re ready to go, they can be there “today”. In most cases, the SRA will give prior warning by writing to distressed firms requiring the management to seek external insolvency advice. But often if it gets to this stage, it’s already too late.

“Smart lawyers should be thinking about turnaround options that are available before it’s imposed upon them by the SRA,” explains Steven. “The aim should be, even before the SRA gets them on its watch list, to get advice before insolvency options are required.”

Common warning signs such as poor cashflow, falling sales or not being able to meet payments to HMRC should be taken seriously by partners and directors. Struggling with PAYE and VAT payments are indicators that management must act. “A new pair of eyes coming in can spot the issues,” explains Steven.

“The reason management doesn’t address structural business problems is fear of change. But change has been forced upon them by the market and smart directors must act to turnaround the business.” The KSA Group offers a variety of solutions including plans “A”, “B” and “C” to the distressed firm, and works with it and the SRA to prevent regulatory intervention.

Plan “A“ can be used while it’s still possible to defer creditor payments, restructure bank debts, chase debtors, cut costs and turn the business around.

If creditors choose to reject this informal deal, then Plan “B”, may be used, this is often a formal Voluntary Arrangement (CVA or PVA) to pay creditors over a fixed period while continuing to trade. Debts are substantially discounted on the way through. If it gets to the stage where it is impossible to turn the business around, that may mean plan “C”, when a break-up sale to buyers or a prepack administration becomes necessary. “That’s not desirable for all parties, but it can sometimes be the only outcome” said Steven.

The KSA Group also offers a free online guide at www.companyrescue.co.uk which has served as a crucial aid for companies feeling the pressure of a tough economic climate, with thousands still trading with its help.

020 7887 2667

Insolvency rules under review by the Insolvency Service

Proposals to simplify and reorder existing Insolvency Rules and replace them with a single set of rules were announced in a consultation document published by the Insolvency Service yesterday
The new rules bring together 24 Statutory Instruments. They also make common provision for processes, such as meetings of creditors, that apply across different insolvency procedures, to make it easier for users.

The new rules will also include written information requirements to make it easier to use electronic submission rather than relying on statutory forms. This will result in a more logical structure to improve clarity and consistency.

The consultation – modernisation of rules relating to insolvency law, which closes on 24 January 2014, is aimed at insolvency practitioners, judges, lawyers and people involved in insolvency issues, e.g. creditors and debtors. It follows feedback from users who wanted a more streamlined structure free of archaic and often impenetrable language.

The current rules have been in force since 1986 and provide a framework for the Insolvency Act 1986, setting out requirements for the majority of insolvency procedures.

The draft rules anticipate some of the policy changes from the Government-wide Red Tape Challenge proposals announced in July 2013, including proposals to change the need for creditor meetings and contact.

The proposals include:

Structural changes:
Creating a single set of rules.
Reordering the rules on more logical and clearer lines.

Content changes:
Using plain English and improving consistency to make the rules easier to understand, and to improve consistency across insolvency procedures.
Making it easier for documents to be delivered by electronic means.
Removing shareholders and those under a duty to contribute to unpaid share capital – contributories - from the list of people who can be appointed to a liquidation committee.

Commenting on the proposed changes, Deputy Chief Executive Graham Horne, said:

“We have listened to our stakeholders and want to modernise the Insolvency Rules so that they are easier to understand and apply. This consultation is a great opportunity for people who use the Rules to help us ensure they are fit for modern needs.”

Collectables in administration

Its that time of year again when the quarter's rent is due and it looks like a couple of larger retailers are feeling the pressure.

Collectables, the gift retailer which has 11 stores and employs 200 staff, has entered administration
administrators at KPMG have been appointed.  The firm has retail units across the North East.  So far the administrators have made 25 people redundant in the head office and closed the shops.  However the staff at the shops have not been made redundant as yet as the administrators have said the situation is "uncertain"

Jonny Marston at KPMG said: "Sustained difficult trading conditions have resulted in the business facing cash pressures with a further increased demand for working capital in preparation for the Christmas trading period.

So this looks a bit like a cash crunch, maybe creditors being very aggressive but there is a possibility of extra funding very close.  Normally in these situations it would pay to file a notice of intention to appoint an administrator to stop legal actions.  However it would appear that in this instance stopping trading immediately was a priority to avoid the situation for creditors getting worse or possible accusations of wrongful trading.  Without knowing the full situation this is really just speculation.  The looming rent bill of course was a crucial factor.  KPMG are very rescue minded having done several high profile CVAs so it will be interesting to see what the outcome is.

The administrators said; "We are now assessing the company’s financial position and the options available, whilst marketing the business and assets for sale."

The company operates from 13 leasehold stores and owns a freehold store in Alnwick.  It was founded when Philip Lewis began trading small collectable gifts from a barrow in the Metro Centre in Gateshead.

If you are a retailer based in the North East please do not hesitate to contact our Gateshead office where Eric Walls and the team can offer advice on all the options.

If you are a worried employee then please refer to our help for employees pages at  http://www.companyrescue.co.uk/company-administration/redundant-employee

Free daily cashflow spreadsheet for directors

Everyone likes to get something for free! You don't get many handouts in business, so today we are giving away our free daily cash-flow forecasting spreadsheet for SME company directors!

Click here for your copy, no need to register or tell us who you are! Just click and download.

Tomorrow there will be more free offers so watch this space!

KSA Group provides a wealth of free information for businesses via our website at http://www.companyrescue.co.uk

Everyone likes something for free number 2!

In addition to our free cashflow spreadsheet today we are giving away our free directors toolkit, guides, cash-flow forecasts, how to do deals with HMRC

All FREE click here

Caught in the act: The rise of unlawful phoenix companies

There is a lot of controversy surrounding the idea of “phoenix companies" and creditors can often feel aggrieved to find someone who owed them money trading again without significant consequences.

To start a new company doing the same type of business following a liquidation the directors need to fulfill certain requirements; those who don’t, run the risk of committing a criminal offence.

One of the main causes for this is when a limited company is put through liquidation and a director of that business continues to trade under a name which is either similar or identical. This is prohibited under Section 216 (2) of the Insolvency Act, where it states:

For the purposes of this section, a name is a prohibited name in relation to such a person if-
        (a)  It is a name by which the liquidating company was known at any time in that period of 12 months, or
        (b)  It is a name so similar to a name falling within paragraph (a) as to suggest an association with that company

Whilst it is clearly stated that such an act is illegal, the number of phoenix companies taken action upon has doubled in the last year. In the financial year of 2011/2012, the Insolvency Service took action in 85 cases. However in the financial year of 2012/2013 this had risen to 163 cases.

Many people believe that they can simply offload their debts by starting up a new business under a similar name; don't fall into the same trap. If you wish to continue in business following your company liquidation then it is very important to take advice. Section 216 is a legal minefield so please call us if you have any questions.

Castle Kitchens in Liquidation

Castle Kitchens, with a long history in Plymouth going back to Victorian times, it to be placed in liquidation on the 1st of October.  The company used to break up wooden ships for recycling but diversified into kitchens in 1955.  The business was bought in 2004 by the former directors of the Clay mining firm WBB.

Michelle Weir, a partner at Lameys, the insolvency practitioner appointed to the case said: "The company has been a victim of the effects of the recession which has seen the sales of luxury items like kitchens reduce dramatically.  "The severe effects of recession over the past four to five years have taken their toll on the business which has led to its demise."

The c. 18,000sq ft building that Castle Kitchens occupied, which also contained a warehouse section, has been put up for sale at £720k or it can be rented for £75k.

So what actually happens in a liquidation?

Have a look at our flowchart of the whole process: 

Construction Businesses Feel Cost Pressures

What a difference a few months make.

Back in May we blogged "Construction output in the UK shrank by 2.4 per cent in Q1 of 2013, falling to its lowest level since 1998."  

  • Now in Q2 the construction sector has seen a 20% increase in orders over the Q1.  
  • Atkins have announced that they are taking on 400 graduates and apprentices this year which is the most in its 75 year history
  • Plans for a "Gotham City" style of buildings is going to planners for Leadenhall Market in the City.  This will be a £400m project
  • Bricklayers are now able to command salaries of £40k+ a year
  • Bricks and breeze blocks are having to be sourced abroad as suppliers cannot meet demand.
  • Reservation rates on new homes reported by Crest Nicholson is up 46% on the same period last year.
  • Other builders say they can't build fast enough!

So this is some turnaround!  Construction is always very cyclical and can be slow to match demand but this is good news for the economy and will feed through into the GDP figures as we near the, Ahem... Election.  

For some smaller construction companies rising costs can be a complete nightmare as they may be finishing off jobs on fixed quotes and not been paid on new jobs taken on.  There could be a bit of cash crunch.  In fact our regional manager George Davis has been to see a few such companies recently.

No matter where you are based and want one our regional managers like George to visit you then call our freephone number on 0800 9700593.  A cash flow problem does not necessarily mean the end of the business!  Call for advice.

Coggles to close stores and expand online

York-based Coggles that went into administration in May of this year will expand online following its purchase by Hut Group. The group has now announced its plans to turn the business around by "doubling or even trebling" the size by moving more online and closing its outlets.

Steve Whitehead, Hut's commercial director, told the Yorkshire Post: “We can't change autumn/winter 2013, but we've ordered the products for spring/summer 2014 so we expect more of an impact next year.

“I really see a big step up for Coggles. We're looking to double or treble the size of the Coggles site. We want to enhance the Coggles brand. It's so strong it has won every draper's award going.”

He added that Coggles and The Hut Group share a similar approach to fashion, explaining that the companies have both generally avoided high fashion and focused on high-end brands instead, selling items that people will come back for more than once. “It's about very strong lifestyle products, not brands that come and go,” he noted.

The new owner's change in approach to the management and development of Coggles looks set to help bring the brand back to health.
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