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Q1 2015: lowest level of company insolvencies since 2007

The latest insolvency statistics for January to March 2015 reveal the total number of company insolvencies is at its lowest level since Q4 2007.  

Findings from the Insolvency Service show liquidations (CVLs and compulsory) were down by 8.6% since the same time last year, while administrations had fallen 16.9%. Company Voluntary Arrangements (CVAs) were down by 34.5% since the same time last year, the lowest since Q4 2007. 

Findings further show there were 2,481 CVLs in the first quarter of 2015, a 5.6% drop since the same period last year, where there were 2,649 liquidations. There was a drop of 3.7% from the previous quarter (Q4 2014).  

The graph below from Companies House and The Insolvency Service shows the downward trend since the peak of the recession in 2009.

Why the gradual decline?

Despite recent ONS data showing economic growth is slowing down in the first quarter, the national economy is still in a strong position. With the alternative finance industry booming, many small and medium sized businesses, including start-ups, have access to much-needed funding and equity.

The falling number of insolvencies indicates fewer businesses need to go through formal channels of restructuring and turnaround, especially if debt finance and suitable backing is easier to secure. Many companies have most likely avoided CVAs, administrations and liquidations because of this.

It is possible that some distressed companies have been able to borrow money to pay their creditors, and so deferring any potential action. Businesses could be buying time to take full advantage of improving market conditions. 

It will be interesting to see what the rest of 2015 brings, especially after the election. 

 

Tougher penalties for insolvent football clubs in Scotland

Senior football teams have voted at the recent Scottish Professional Football League meeting to increase the punishment for football clubs that become insolvent.

15 points are now to be deducted if a club goes into administration with another five points off the following season. If the club goes into administration again within five years, there will be a 25-point penalty, followed by a 15-point deduction the following season.

Previously, the rules gave just a 15-point deduction in the first instance and if the club went into administration for the second time within five years, there would be a 25-point deduction.  

Dundee, Rangers and Hearts have all entered administration within the last few years, with Dundee appointing administrators twice. 

The tougher punishment has been welcomed by Scottish clubs, including Hibernian FC, in a bid to help struggling clubs avoid administration by facing financial problems as soon as possible. Staff and players can be left without months of pay in administration cases, something which the Scottish Football League is keen to stop. 

Financially distressed clubs have several options available to them, including the company voluntary arrangement. Directors keep control of the club and administration can be avoided while debt is paid back over several years. Take a look at our football and CVA page for more information.  

Help for struggling law firms

Do any of the following apply to you?

  • Is your practice experiencing cashflow problems?
  • Are you worried that insolvency may affect your ability to practice in the future?
  • You don’t want to risk the SRA Intervention
  • Are you concerned about paying your professional indemnity premiums?
  • Could Legal Services Act (LSA) be a threat to your business model?
If so, then you should take a look at our Help for Lawyers Page

Browse all the options available for a recovery plan. Our guide will set out the preferred non-insolvency route and one or two back up approaches. 

As KSA Group was behind the first company voluntary arrangement (CVA) for a LLP law firm in 2008, we know a thing or two about fixing these problems, setting out a recovery plan and driving the business forward. 

Fill out our enquiry form or call us on 0800 9700539 and speak to one of our expert advisors who can talk you through your options.

Fall in Scottish company insolvencies

According to research from KPMG, the number of insolvent Scottish companies in the first quarter of 2015 has fallen 21%, compared to the same time last year.

Liquidations in Scotland fell even more by 24% year on year. Compared to the previous three months (Q4 2014), the number of liquidations decreased by 13%. 

Official figures from Accountant in Bankruptcy (AiB) show the number of liquidations and receiverships hasn't been this low in seven years (looking at Q4 2014 results). It is the third consecutive year that Scottish insolvencies have been in decline. 

Head of restructuring at KPMG Scotland, Blair Nimmo, said in a statement: 

“It’s clear as we enter the second quarter of 2015, in general, businesses are in a stronger position. Buoyed by an overarching recovery, economically we’re seeing a positive trading environment for both large and smaller organisations in Scotland, which is reflected by the drop in insolvency appointments.”

“That being said, volatility in oil prices as well as uncertainties around the outcome of the general election may have wider repercussions for the economy as businesses adopt a 'wait and see' approach to growth.”

Supporting Nimmo’s comment, many SMEs could be waiting to see what happens in May before deciding the next step for their business. The government’s Q1 insolvency statistics for England and Wales will be released next week.


Solve cash flow problems with a free daily cash flow template

Does your company have a daily cash flow system in place? If not, why not?

Download our free daily cashflow template and keep on top of outgoings, expenses and income. You are far more likely to be able to spot potential problems ahead if you are regularly looking at it. 

Remember the old saying, " Turnover is vanity, profit is sanity and cashflow is reality." 

Use the cash flow model every day to see "where you are" and what issues could turn into problems. Plug in the dates each customer that owes you money should pay you - you can use this as a guide for debtor collection. 

Debtor collection
Are your customers taking longer to pay you? If so, why is this? The best thing to do is to find out by asking ALL of your customers. You can assess your own debtor collection dates, find out how they are doing and market to them. Then, update the daily cash flow, it should show when customers are likely to pay you. 

Cost cutting
Good cashflow management goes hand in hand with cost cutting. When you see daily figures, it helps focus the mind! Please take a look at our cost cutting tips

Avoid insolvency with an informal arrangement

If your business is falling behind with payments, as and when they fall due, it may be possible to arrange an informal deal with your creditors to pay them back over an extended period. The creditors of the company may agree to extend the payment terms over 12 months.  

A Time to Pay deal with HMRC works like above and gives a struggling business some extra breathing space. However, it should be noted that the company will need to pay back 100p in the pound. If this is not doable, it's worth looking into the Company Voluntary Arrangement option. Directors still keep control of the company and a proportion of debt is paid back to creditors over a set time period, usually 3 to 5 years.

Read through our insolvency test page for more information on warning signs, cashflow problems and turnaround solutions.     

Three of the biggest issues small businesses face

Thriving small businesses are the heart and soul of communities across the UK because they create jobs, financial support and help to strengthen local economies. To reach a level of success, many small business owners will tell you that there are certain struggles along the way which force businesses to adapt, cut back on staff or re-evaluate their business goals and strategies. 

We take a look at the main difficulties small businesses encounter, with tips on how to prevent problems spiralling out of control. 

Rising costs

Together with rent, business rates, purchasing stock, employing staff and various other expenses, the cost of running a small business can soon become overwhelming. 

While there are plans to reform business rates, it could take a while before any major changes take place so it’s important to have a good cash flow system in place. Preparing financial forecasts and considering cost-cutting techniques will put the business in a good position in the long run. 

If your business is struggling to keep up with rent payments, it may be possible to negotiate with the landlord to see if, for example, rent can be paid monthly instead of quarterly.  

Access to finance

For a while now, many SMEs have found it challenging to secure finance from traditional lenders and banks because of strict lending regulations and barriers. Whether businesses need extra funding to expand or a quick cash flow injection, it can be disheartening when applications are rejected.

Alternative finance can provide much needed funding quickly and efficiently for any businesses across all industries. It’s best to research the market and look for the most suitable product for your business.

Over the last few years, more alternative lenders have entered the market offering asset finance, peer to peer loans, crowdfunding and online business finance. Assetz Capital, ArchOver and Funding Circle, for example, all provide a platform for businesses to secure working capital from various investors. 

Competition

Depending on the service you provide or product you sell, you could have one to two competitors or possibly hundreds so it’s vital you set your business apart from the rest and have clear unique selling points. Marketing can be tricky for small businesses, especially if the budget is tight but there are ways to stand out from the crowd.

Keep ahead of competitors by continually researching your target customers’ likes and dislikes, their thoughts on prices and their expectations of your service or product. It’s also a good idea to keep a close eye on the competition and see what they’ve done well and not so well. 

Ensure you make good use of all the free services available to you, like social media and local networking events to spread the word about your service or product. If possible, give presentations or free demos either online or at events to show what the business can do for its customers. 

Small Business, Enterprise and Employment Act 2015 now official law

The SBEE Act has now received Royal Assent, becoming official UK law - the first ever act specifically for small business. This is a welcoming step to help small businesses across the UK, not only with finance but in a range of areas across the board. This is also great news for employees as small businesses will no longer be able to take advantage of zero contract policies and will be penalised if they pay less than national minimum wage. 

A range of areas are covered in the act, including company filing and accounts, late payment, access to finance and insolvency procedures. 

The move has been a long time coming for SMEs as previous systems and red tape have been unhelpful for businesses wishing to secure funding and have support within the local and national economy. As part of the act, banks that have rejected businesses will now have to provide details of alternative lending platforms to ensure there SMEs have access to finance.

The act will also be combating late payment, something which can cripple small businesses that rely on large organisations to pay on time. Large companies will now have to review their payment procedures twice a year and report on their findings. This transparency will hopefully prevent businesses paying SMEs too late. 

John Allan, the national chairman of Federation of Small Businesses, said “For the first time, an important piece of legislation has been devoted to small businesses. This underlines the huge economic contribution small firms make to the UK economy and recognises their distinct needs.” 

Here is a brief look at the Small Business, Enterprise and Employment Act, which consists of 12 parts:

  1. Access to Finance (includes disclosure of payment practices and systems, VAT information sharing, access to alternative finance)
  2. Regulatory Reform (includes published recommendations from the Competition and Markets Authority, due attention to small and micro businesses, exclusion of home businesses from Landlord and Tenant Act 1954, streamlined company registration)
  3. Public Sector Procurement (investigating regulations)
  4. Pubs Code and Adjudicator (includes overhaul of the pub tie system, investigations and reports) 
  5. Childcare and Schools (includes funding for early years childcare)
  6. Education Evaluation 
  7. Companies: Transparency (directors’ duties, abolition of share warrants to bearer, register of people with control of the business)
  8. Company Filing (confirmation statements instead of annual returns, more information on the register, change to director disputes)
  9. Directors’ Disqualification (New regulations and amendments to disqualification across UK) 
  10. Insolvency (includes more power for administrators to claim on directors’ fraudulent actions, end of obligation to hold creditors meetings – individual and company, change in sales to connected parties, creditors no longer required to claim for small debts, improved regulation of insolvency practitioners)
  11. Employment (includes equal pay transparency, company penalties for not paying claim after employment tribunals, penalties for not paying national minimum wage, clearer zero hour contracts allowing workers to find additional employment)
  12. General (amendments and reviews of the act)

 You can visit the government legislation website for a complete version of the act. 

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