Helping directors for over 23 years.

Talk to us today in confidence:

Lawyer Partnership Cashflow Problems

8th April, 2019
Categories:
Keith Steven

Written ByKeith Steven

Managing Director


07879 555349

Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He has expert knowledge on the company voluntary arrangement (CVA) mechanism

Keith Steven
  • Cashflow Problems in Law Firm Partnerships
  • The Cashflow Test
  • The Balance Sheet Test
  • The Legal Action Test
  • What next?

We are a firm of very worried solicitors. Our legal practice is a partnership. We are under growing pressure from all sides. How can you help us solve these problems, restructure and survive?

Cashflow Problems in Law Firm Partnerships

If you are practising as a partnership you are of course jointly and severally liable for the business and personal debts you have built up. What should you do if the practice is struggling?

First thing to do is to establish if you are insolvent. See the 3 tests below:

The Cashflow Test

Simply – can your practice pay its debts as and when they fall due for payment? Are you as an individual partner in cashflow difficulties with aggressive creditors? This too may cause problems for the partnership.

For example if you are not paying the deductions from employees for NIC and Income Tax across to the HMRC on the 19th of the month following the month they were deducted, then your partnership may be insolvent. Have you met loan repayment dates for practice loans or bank loans?

If your trade creditors sell to you on say 30 days terms and you regularly pay on 90+ days, then you may be insolvent.

The Balance Sheet Test

Simply, does your partnership owe more than it owns, or are your business assets exceeded by your business liabilities? If yes, then you are insolvent.

It is important to point out that this test should include contingent or prospective liabilities. (If you need advice on these issues email us).

The Legal Action Test

If a creditor has obtained a County Court Judgment, this may demonstrate your partnerships insolvency and the creditor may petition to wind up the partnership.

If a creditor has obtained a statutory demand for greater than £750 and it remains unpaid for more than 21 days, then the creditor may petition to wind up the partnership.

What next?

Second thing to do is to use our free daily cashflow spreadsheet (EASY TO USE) and set out the expected cashflow in and out of the business over the next few months.

If you need any advice on filling this out we will provide this free of charge. Please call us on 0800 9700539

This tool will set out what the likely cash position is in the business over the next few months and will help YOU decide which is the most appropriate option. If cash is drying up and there is no way to fix it then winding up the partnership and possible personal bankruptcy could be the option to study see Plan C below.

If cash is tight but still flowing then Plan A or B should be considered. If you know that good cashflow is coming through in the next few months then Plan A can be a powerful way to buy that time.

Now please read our guides to

Plan A trading out and refinancing (avoid insolvency)

Plan B Partnership Voluntary Arrangement (PVA) and or linked individual voluntary arrangement

Plan C Winding up of the partnership

superdry logo

Superdry Maybe Looking At A CVA

Update : 15 April 2024It hits the news today that landlords of Superdry are considering a restructuring deal that would result in steep rent cuts at a large proportion of its 94 British shops. The scale of the rent cuts would be dependent on the financial performance of each site.According to City sources, the fashion retailer is not planning on any permanent closures, but landlords would have the option to terminate any leases if they were not satisfied with the terms of the deal.Superdry has been facing red for some time. Most recently there were talks with founder, Julian Dunkerton regarding a takeover, but such talks were then aborted.Sky News share more. Update : 29 January 2024In line with other retailers Superdry has been finding trading difficult due to the cost of living crisis.  It has also been cutting back its store count. The clothing brand has 104 stores in the UK and started closing some back in July 2023.  The company also announced that it was looking at costs savings of some £40m.  This is an increase from the £35m they announced recently.  There are now rumours circulating that the company is looking at a Company Voluntary Arrangement (CVA) as a way of cutting costs.The CVA is a powerful rescue tool that is particularly favoured by retailers due to is ability to allow companies to vacate properties and determine their lease obligations.  The cost of high rent shops on long leases can be a heavy burden on retailers.The following case law has been used for some years now to terminate leases with no cash cost to the company.Re: Doorbar v Alltime Securities Ltd (1995) BCC 1149 stated that landlords can be bound by voluntary arrangements for future obligations under a lease.Re: Cancol Ltd (1995) BCC 1133 that the word ‘creditor’ in r1.17(1) IR 86 was wide enough to include a landlord with a right to future rent i.e. the ability to include future rent extends to CVAs as well as Individual Voluntary Arrangements.Furthermore, where the unliquidated or unascertained claim in a CVA involves future rents accruing to a landlord, the case of Re Park Air Services [1996] BCC 556) gives the CVA meeting   chairman some considerable guidance as to quantifying the claim at the meeting.Another reason that Superdry is finding itself in difficulty is that it rapidly expanded to try and become a global super brand.  No doubt much of this expanision was fueled by cheap debt and as many companies are now finding out when interest rates rise and customers pull back the going gets very tough.  As such the shares have lost almost 90% of their value in the last 12 monthsSky News has reported that PWC are the advisors that are looking at restructuring options.It is quite standard practice to put out stories about a possible CVA as this does prepare the ground for negotiations with landlords.  They will be asking the landlords for substantial rent reductions in order for them to survive.  If landlords refuse then they can usually get other suppliers and trade creditors to support a CVA proposal and out vote them.Landlords have tried to challenge CVAs in the courts on the grounds that they unfairly prejudice their position but have so far failed to succeed. 

Read
Superdry Maybe Looking At A CVA

Related Guides

Related News

Worried Director? We Can Save Or Restructure Your Company!

Call now for free and confidential advice