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Advice from Family and Friends

Published on : 3rd August, 2017 | Updated on : 31st January, 2024

Table of Contents

  • Health Warning for Directors – Well-Meaning Advice from Friends and Family
  • So what sort of poor advice are we talking about?

Health Warning for Directors – Well-Meaning Advice from Friends and Family

This page has been difficult to write because all too often we see that directors of companies turn to members of their family for advice when they realise that their business is in a tricky financial situation. Unfortunately this advice is quite often completely wrong and potentially damaging.

Family members offer advice about what to do but they are too close to the situation and, to be honest, are unlikely to have any actual expertise or experience of how best to act when a business is facing severe financial difficulty.  All too often, family members and loved ones will tell directors what they want to hear!

The danger is that directors in a stressed frame of mind will not necessarily act rationally and such advice from family reinforces the illogical thinking. What’s more, friends and family may not have the same exposure personally and therefore actions taken probably won’t affect them as much.

So what sort of poor advice are we talking about?

Borrow more money!

Often money is seen as the cure. Of course, normally the people who advise this are not the ones having to guarantee the loans!  Most loans direct to businesses often need to be personally guaranteed.  Is more money the answer? Really?  You have to look at the reasons why the business is running out of money? It might be the fact that the director(s) are incompetent on the financial side and need help. Fancy saying that to your nearest and dearest?

Just put more personal money in

This advice is better than borrowing money but only if you can afford to! Remember that any money that is put in to a struggling business is at serious risk. Take out security if you’re prepared to put more money in. It costs a little bit more as you will have to register a debenture at companies house but if the company fails then you will rank above trade creditors and HMRC when it comes to getting paid.

You will be disqualified if the business fails

This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.

You can’t be a director again if the company fails – Completely wrong again (see above).

Your credit rating will be shot if the company goes into liquidation – Only if you have personally guaranteed loans to creditors and are unable to pay (see above about taking on more debt). Know the difference between creditors voluntary liquidation and compulsory liquidation. A compulsory liquidation will look worse on your record than a voluntary one if an extended credit check is done (sometimes these are requested if you are working in defence, financial services, insurance and other sensitive areas).

You must pay creditor X before creditor Y 

This is a minefield.  Paying one creditor over another can be construed as granting a “preference” and can be reversed by the court or a liquidator if the business fails as a result of the preference or it was insolvent at the time.  What is more this can still happen up to 2 years after the transaction.

Move some of the assets to another company for a £1 and start again?

Careful as any transaction that is not deemed to have been done at fair value can be reversed by the court. In fact there are lots of Insolvency Practitioners who make a living getting these cases to court on behalf of creditors that feel they have been stitched up.

HMRC will not negotiate and will just wind the company up

HMRC enforcement are tasked with collecting 100% of the debt.  If this is simply not possible then they can negotiate on a reduced pay out over a period if the company proposes a CVA.  This is handled by another department of HMRC ( the voluntary arrangement service ) and they will take the case off enforcement.

Don’t do a Company Voluntary Arrangement (CVA) as they don’t work

Oh really?  They are often the only chance that a business has and for the record the majority of them do.  The ones that fail are poorly put together or the company has not changed sufficiently to meet the rigours of paying back debts over a 3-5 year period.

So if you are close to a director of a distressed business the best advice you can give is GET ADVICE from SOMEONE ELSE WHO IS AN EXPERT!

This all sounds quite blunt but we want to help directors. We are currently dealing with a company where the director’s brother gave such poor advice that the director is now likely to lose everything; His house and a £1m business.  This inspired me to write this page as a warning to others.

Hobbycraft To Launch CVA to Close Stores And Negotiate With Landlords

​According to information obtained by Sky News, Modella Capital, a private investment business that specialises in acquiring struggling retailers, including WH Smith, will propose a company voluntary arrangement (CVA) at Hobbycraft as early as Wednesday. It has been reported that it will be FRP Advisory that will propose the CVA.People close to the plan stated that nine of its shops would be closed with the loss of around 100 jobs, and that 18 more would remain open only if negotiations with landlords over rent cuts work out.According to the individuals, 1,800 staff will be protected as an additional 97 stores will not be impacted by the CVA.Hobbycraft ‎is the latest in a series of High Street names to look at trying to reduce the size of their store portfolios amid rising pressures from online and discount rivals, increased employment costs and a deteriorating outlook for consumer confidence.Expensive High Street stores can be cut back provided that the lease allows for early termination.  If not the only way out is to surrender the lease that can be very expensive or use a company voluntary arrangement (CVA).A CVA allows the retailer to determine its lease obligations which can greatly help the company's cash flow. For more information on why a CVA is a perfect mechanism for helping retailers, read our retailer rescue page  Why not read our case study where we rescued a multi-store retailer

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Hobbycraft To Launch CVA to Close Stores And Negotiate With Landlords

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