Top Ten Warning Signs for Shareholders: Is your company insolvent?

1. Your board fail to communicate financial information to you.
   
   
2. The directors cannot agree to the best policy and/or appear to be at war with each other.
   
   
3. High staff and management turnover.
   
   
4. Late management accounts, audited accounts and or annual returns.
   
   
5. Autocratic leadership – is one person making all the decisions?
   
   
6. Different answers to the same questions to different directors.
   
   
7. Targets/ budgets are regularly not met.
   
   
8. The board regularly asks for new investment.
   
   
9. You have to introduce new directors or advisors.
   
   
10. The bank wants to introduce investigating accountants.

The basic fiduciary duty of the directors is to inform the members at all appropriate times as to the company’s performance. However, few directors realise that when a business becomes insolvent, then the duty of care shifts from a duty to act on behalf of the shareholders to the body of creditors as a whole.

If you are private investor you should take advice from our KSA if you have any questions on your company’s insolvency.

For more information see is my company insolvent for a detailed analysis of insolvency.

Are you a VC, private equity or institutional shareholder?

We often act for shareholders after management buy outs (MBO’s) and management buy ins (MBI’s) etc where the incoming or incumbent directors have failed to deliver or act correctly. We often remove such directors and replace with our interim managers until quality full or part time people can be recruited.

In our experience, the pressure of having the buck stop at a director’s own door (when he/she has been used to being employed as a director or manager with modest responsibility) is often too great. Many such directors cannot deal with the turnaround required and it is best to ensure that quality experienced people are brought in.

We usually use the CVA or Administration to control the problems we face. Our use of the CVA mechanism allows us to remove any employee or director and ensures that any contractual cost fall-out is contained within the CVA repayments. The early removal of senior people can lead to a sea-change in the organisation – middle and remaining senior management often starts to perform and the blame culture dissipates.

If this relationship is under pressure then the causes and effects must be examined by the directors, members and the turnaround advisors. The institutional member, in our experience, will only resort to aggressive action if the directors are delinquent, fail to respond to reasonable requests or do not provide sensible financial information.

We make sure that the investors are kept informed of our work at all appropriate times. Over the years we have worked with many major VC’s and have never had one reject any of our proposals. Clearly, our common sense approach to inclusivity pays off. Often the news for the member is not good but we try to ensure that we work together to the common target – getting some value before the receiver or liquidator arrives. Obviously the shareholder rarely sees any value once an insolvency closure mechanism is under way.

If you have problem company, talk to our turnaround expert Keith Steven now, 07974 086779.