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Case study - insulation and treatment company

A new case study which involves as insulation company suffering with cashflow. The case also shows how non-communication can be very unproductive:


Two bosses in contracting business banned for 14 years

Two bosses from Highland Quality Construction Limited (HQC) have been disqualified by the Insolvency Service. The department found the pair had been involved in several payments to connected companies when it appeared HQC were in debt and could not afford to make such payments. The two directors also disposed of assets without a connected company's consent.

Gary MacDonald has been banned for eight years while Colin Thompson has been banned for six years, a total of 14 years. The company went into receivership at the start of June with accounts showing it owed the sum of £9,120,005 to creditors.

The investigation showed payments totaling £520,857 were made to linked companies, despite some debt left unpaid. Furthermore, machinery was sold off with proceeds given to a connected company. 10 items that belonged to another company were sold by the directors without that company's consent. This resulted in the related business losing £486,000.

Head of Investigations at the Insolvency Service, Joanne Covell, commented, "At a time when a company is insolvent and not paying its debts when due, the directors also have a duty to act in the best interests of the creditors. This is to ensure that creditors are treated fairly and in a transparent manner."

"Company assets should be handled in an appropriate manner, taking account of ownership and seeking to minimise potential losses to creditors."

In insolvency terms, the company created 'preference' by choosing to pay some creditors over others. This can be referred to in s239 of the Insolvency Act 1986.

Business Distress Index June 2014

The latest business distress index looks at the effect if interest rates rises on businesses.  Following a survey of 500 representative businesses, commissioned by R3, it was established that  6 per cent of business managers felt their company would be put in ‘serious’ financial difficulty with a 1 percentage point rise by end of 2015, while 16 per cent said they would be put into ‘some’ difficulty.

Giles Frampton, President of R3, said  “A one percentage point rise in interest rates is at the upper limit of what we might expect in the eighteen months, but policymakers should bear in mind that many businesses still feel they’re close to the edge of their comfort zone.”

There has been much in the press recently about the possibility of a rate increase over the coming months and how it would affect people and businesses.  In the main, it is expected that rates will only increase if the economy starts to grow significantly and with it price pressures.  Those conditions should help businesses and offset the affect of any rate rise.

Problems will arise if the costs of materials goes up significantly and the recent problems in Iraq, resulting in a sharp rise in oil prices, reminds everyone that this can happen.

As the economy continues to improve, and the rhetoric on interest rates increases, then it is likely the pound will strengthen further and this could put pressure on exporters, who are often also quite highly geared.

Lakeland Leather Shops in Administration as 200 Jobs at Risk

Fashion retailer Lakeland which started in the Lake District has entered administration.  Note it is not connected with the Lakeland kitchenware chain.

Up to 200 jobs are at risk at Lakeland after specialist administrators McTear, Williams & Wood were appointed last Friday.

The Management said they are trying to save as many stores, of which there are 18 currently trading, and jobs as possible.

Lakeland claims to be the UK’s largest specialist retailer of fine leather goods and has been owned by the Standring family for almost 50 years.

It has 22 stores across the country including on Market Place, Ambleside, Lake Road, Bowness, and also on Stricklandgate and at K-Village in Kendal.

Four stores, including the one at K-Village, closed immediately at the weekend.

The other 18 have closing down sales and are faced with an uncertain future.

“We are hoping to sell as much of our stock to pay creditors which will hopefully allow us to save as many stores and jobs as possible," said managing director Martin Foster.

UPDATE 17th July 2014 - It has come to light that the company was sold in a pre-pack deal, shortly after entering administration. The assets were sold to Felldale Ltd, a newly formed company set up by Operations Manager, Martin Forster. Unsecured creditors are expected to receive 25p in the £1. 

The company blamed high lease costs and a poor weather conditions for its collapse.  Could the business have been saved by a CVA??  Possibly as lease costs can be reduced in a CVA by vacating unprofitable stores.  See this page for more details

Can I sell my company's assets before liquidation?

It may be tempting to 'move' or sell assets at a cheap price from your 'insolvent' company to another company (perhaps another one you own). However this could be breaching section 238 of The Insolvency Act 1986, known as Transactions Under Value.  

Insolvency Practitioners have the power to investigate company affairs that happened prior to the business entering administration or liquidation. If it's proven that assets were sold to another company at a knock down price, the director could be made personally liable for the company's debt, as it is considered as 'wrongful trading'. 

The administrator or liquidator can actually get an order from the Court to reverse the sale of the assets as well. 

Tread carefully if you wish to go ahead with selling assets and make sure you go about things the correct way. You must obtain professional valuations from a RICS surveyor and keep records of all sales and correspondence. You must also make sure the company's board approves your plans.

It's a complex process and can easily be misconstrued as wrongdoing so if you're unsure what to do, seek legal or insolvency advice. 

Hearts Football Club out of administration

The troubled football club has been in administration for the last year after falling into £30 million of debt.

Yesterday, news finally arrived that the club has officially been taken out of administration after exit documents were finalised with the Court of Session in Edinburgh.

The club's fans (Foundation of Hearts) rallied together earlier this year to develop a business plan, resulting in thousands of Hearts fan pledging to pay monthly payments. The club was taken over by BIDCO and now Executive Chairwoman, Anne Burge, to see it through the administration process and into a CVA.

For more details on this story, see our news piece: http://www.companyrescue.co.uk/latest-news/hearts-fc-exits-administration-into-cva

KSA Group's London Office Opening Party and TMA event was a great success!

Last night we held our first big event in our new offices at 99 Bishopsgate.

We had over 80 people in attendance and a special thanks goes to our speakers;

  • Richard Mayall from Lloyds' Mid Market Business lending team, 
  • Chirag Shah from Nucleus Commercial Finance, 
  • Ali Akram (Solicitor/Barrister) at law from Lexlaw and Robert Jones (Barrister).

and of course Keith Steven from KSA Group

The event focused on "turnaround in the recovering economy"  It was generally agreed that the recovery is taking a different form to before as banks are still risk averse as the financial crisis is still fresh in people's memories.  The big change is of course the rise of the alternative lenders/crowd funders and Asset-based lenders who are filling in the gaps.  It was highlighted that some companies are using alternative lenders (ALs) to plug gaps in their cashflow but the ALs are not doing enough due diligence.  Directors are also giving more personal guarantees.

Drinks and canapes were enjoyed by all until well after 9pm with lots of networking and new introductions. Funnily enough, some more carried on in the pub until much later....

Thanks to everyone who attended and to Jonathan Reeves of Set up and Go who chaired and put together the evening.

See the video below of the event

Part 1
Part 2

Latest case study - an example of a Holding CVA

This case is quite different to most CVAs as the debt is paid off in one payment, rather than over three to five years. This settlement proved more beneficial than the typical route.

See here for more details: http://www.companyrescue.co.uk/case-study/holding-cva-case-study-animal-centre.

Football clubs, CVAs and administrations

As FIFA World Cup is soon taking over our screens once again, we're looking at how CVAs work for football clubs as well as the impact of administration on leagues.

Why do football clubs go into a CVA?
Usually, the club has racked up a lot of debt and owes money to HMRC and the club's players. A Company Voluntary Arrangement allows the football club to continue running while a repayment plan is set up over a number of years. It is often the most cost-effective solution.

While there is a small penalty for clubs entering a CVA, it's far better result than than administration. Often clubs exit administration and go into a CVA to protect the business. If creditors are threatening legal actions, like Winding up Petitions, there may be little time for CVA proposals to be prepared, therefore the club can go into administration temporarily while information is being collected.

Once in a CVA, directors can regain control of the football club and the club can continue playing in the league.

For more information on insolvency and penalties, read out page on Football Creditors' Rule.

Liquidators win request for accountants to produce company documents

In a recent high court decision, the liquidators of a company were granted access to documents produced by the company's accountants.

It was believed the accountants, who had completed an audit before the company became insolvent, held important information needed by the liquidators to assess the company's affairs. This information included business dealings, among other things.

After requesting the information in accordance with s.235 and s.236 of the Insolvency Act, they were refused by the accountants on the grounds that they only audited the accounts and didn't provide tax advice to the company. The accountants also felt the documents needed had confidential information and should not be part of the liquidators' investigation.

The liquidators decided to apply to court to retrieve this information and it was successfully granted. It was decided that the liquidators did not have sufficient information to conduct their investigations and therefore could obtain further information from the accountants. It was proven it was the liquidators' statutory duty to obtain such necessary information which could easily be produced by the accountants. The court felt the request was a reasonable one.

This case highlights that is it possible for liquidators to get the necessary information from accountants through the court as long as the request is not unreasonable or onerous.

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