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Warning Signs for the distressed partnership

10th August, 2017
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
  • What are the Warning Signs of a distressed partnership?

What are the Warning Signs of a distressed partnership?

If you recognise some or many of these random signs, your business is probably under pressure, at risk or it could be even be insolvent. Look through these signs, print off this page and tick those that apply.

If you get an uncomfortable feeling that it is familiar – follow the guides and advice on this site to help you out. And if that is all too stressful, contact us today, for some free, tailored advice. Do not shy away!

1. Bank
1.1. Your overdraft is always at the limit.
1.2. Your bank always wants more information.
1.3. Your bank has returned cheques.
1.4. Your bank has refused to increase facilities.
1.5. Your bank has asked for facilities to be reduced.
1.6. Your bank asks for increased security.
1.7. Your bank wants personal guarantees.
1.8. Your bank wants to increase personal guarantees.
1.9. Your bank wants security against your own property.

2. Creditors
2.1. Cash flow is always tight so paying creditors is difficult.
2.2. Inefficient production – cannot get stock because you cannot pay creditors on time.
2.3. Don’t hit targets, cannot get stock /services on time.
2.4. You cannot get new credit or extend existing credit.
2.5. The businesses creditor days are growing – i.e divide the amount of money you owe creditors by the sales per annum and multiply by 365.
2.6. You have lots of failed deals with creditors.
2.7. You have lots of red warning letters.
2.8. You have had lots of legal actions.
2.9. You are “Peter & Pauling” – using lots of suppliers and spreading credit around.
2.10. You are always fighting creditor fires.
2.11. You are having to handle creditors calls every day.
2.12. You have had visits by Sheriffs or bailiffs.

3. Debtors
3.1. They just don’t pay on time.
3.2. You don’t know what your total debtors are.
3.3. Debtor days are over 85 days: divide the amount of money you are owed by debtors by the sales per annum multiplied by 365.
3.4. Your business has concentration in 1 or 2 debtors.
3.5. Your accounts department only invoices periodically.
3.6. You do not have a dedicated debtor collection function.
3.7. You don’t want to issue too many credit notes, although you know the goods supplied have been faulty, returned or less than agreed quality.

4. Factors
4.1. They don’t seem to understand my business.
4.2. I can never get enough advance against my invoices.
4.3. They are advancing 75% against my invoices but disallowing lots of invoices.
4.4. They are just too expensive.
4.5. They claw money back from me after the debtor has not paid in less than 90 days.

5. Management (If applicable)
5.1. Autocratic leadership – is it one person running the business?                                                                                                                                                                                                                                      5.2. Are you “compartmentalising” problems?                                                                                                                                                                                                                                                            5.3. The partnership team cant perform because of;

  • Firefighting – you never get your work done
  • The business has a lack of information or wrong information
  • Concentrating on non essential issues
  • Partners seem paralysed into inaction

5.4. Do you blame the:

  • Bank?
  • Creditors?
  • Debtors?
  • Accountants
  • Advisors?
  • Everyone?

5.5. You don’t have a business plan                                                                                                                                                                                                                                                                                      5.6. You don’t have regular management meetings                                                                                                                                                                                                                                                              5.7. You don’t meet your advisors regularly
5.8. You don’t like changes?
5.9. Partners are drawing more money than the business can really afford.

6.You and the other partners don’t know 

6.1. Gross Profit – accurately?
6.2. Costs accurately
6.3. Sales.
6.4. Orders taken.
6.5. Enquiries quoted for.
6.6. Bank balances.
6.7. Where 80% of work comes from.
6.8. Where 80% of profit comes from.
6.9. What your accounts say they are wrong usually
6.10. Your market – what are your competitors, products and threats?
The Key Statistics of the business:

6.1. How many widgets you make per day?
6.2. At what cost?
6.3. How many widgets you need to make to break even?
6.4. How many enquiries do you need?
6.5. How many enquiries do you convert into sales?

7. PAYE

7.1. You are not paying deductions on 19th of the month following.
7.2. You have not filed monthly returns or paid the tax deducted.
7.3. You have had penalties.
7.4. You have entered into deals with the Revenue.
7.5. You are well behind with tax paperwork this is a failure to maintain a PAYE Scheme.
7.6. Taxes and other social security entry on audited accounts seems high.
7.7. Tax Collector pressing.
7.8. Debt recovery unit dealing with account.
7.9. Partners tax affairs are behind
7.10. Not bothered about IR.

8. VAT

8.1. Not filing returns or paying tax on time.
8.2. Had surcharges.
8.3. Doing deals over time with the local VAT office.
8.4. Cannot keep up with deals.
8.5. Cashflow says you can repay far more than profits made.
8.6. Debt recovery unit pressing.

9. Yourself
9.1. You cannot stand going into work on a Monday.
9.2. You breathe a sigh of relief when Friday night comes.
9.3. You don’t open your post.
9.4. You don’t take calls from irate creditors.
9.5. You dread the bank calling.
9.6. You cannot sleep.
9.7. You are falling out with those around you:
9.8. Your partners at home;
9.9. Your partners and staff at work.
9.10. You are very lonely at work.

10. Systems
10.1. Sage or similar computerised accounts package shows negative balances in liabilities.
10.2. You have a computer generated profit and loss but a handwritten balance sheet.
10.3. GP constantly overstated – you just do not understand why no profits are made from such good gross margins.
10.4. Wasteage understated.
10.5. Constant returns, faults disputes with debtors.
10.6. Things always going wrong.

11. People
11.1. High staff and management turnover.
11.2. Political issues causing difficulties.
11.3. Things always going wrong.
11.4. Another partner is showing signs of distress or pressure
11.5. Another partner is insolvent
11.6. Another partners spouse is insolvent
11.7. You are personally insolvent
11.8. Your spouse is personally insolvent

12. Finance
12.1. Always refinancing assets.
12.2. Just need x,000 to sort this problem.
12.3. The next big sale/contract/debtor payment will sort the problem out.
12.4. You have introduced a number of new financial products to keep going.
12.5. You have borrowed money against your home to fund the business.
12.6. You have given personal guarantees to the lenders
12.7. You are not taking money out of the business to live.

13. Legal actions                                                                                                                                                                                                                                                                                                                  13.1. County Court Summons – CCSs – we have had these but what is it?
13.2. County Court Judgments – CCJs – we have had these but what is it?
13.3. Warrants – we have had one of these but what is it?
13.4. Walking possession we have had one of these but what is it?
13.5. Statutory demand we have had one of these but what is it?
13.6. Winding up petition we have been threatened with this what is it?

Click here for a description of these legal actions

OK, now you have read through this there must be some familiar signs. Now go to Insolvent? page to see if the partnership is insolvent. Don’t worry, it is a condition not an end result.

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

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