Tony Mitchell
Managing Director
02476 553700
Business Rescue & Insolvency Newsletter
Welcome to the November edition of our quarterly newsletter, the first following our recent re-branding and change of name. Although not a major difference, the change of name reflects more clearly what we do and will avoid telephone calls from stranded motorists telephoning us for break down services thinking that the old named Cranfield Recovery Limited operated a fleet of tow trucks. Our aim is to bring you the latest facts, news and comment on insolvency and business related issues. We would love to hear from you with any comments on the newsletter and any topics you would like us to cover.
Insolvency Latest – Quarter 3 2007, Published 2 November 2007
| No. In Quarter | Change On Previous Quarter | Change On Same Period Last Year | |
|---|---|---|---|
| Company Liquidations | 3,106 | +1.8% | -4.4% |
| Receiverships | 90 | -30.2% | -3.2% |
| Administrations | 508 | -10.1% | -24.7% |
| Company Voluntary Arrangements | 109 | +10.1% | -30.6% |
| Bankruptcies | 15,833 | -2.1% | +2.2% |
| Individual Voluntary Arrangements | 10,239 | -4.3% | -14.3% |
Source: The Insolvency Service (2 November 2007).
The news from this quarter's insolvency figures released by the DTI last Friday was again all about the level of personal insolvencies as opposed to corporate failures.
Although there was a small rise in company liquidations of 1.8% on the previous quarter, liquidations were 4.4% down on the same period last year and overall, taking into account all formal insolvency procedures, including Administrations, Receiverships and Company Voluntary Arrangements, there was virtually no change compared to the last quarter.
The problem with the personal insolvency figures was not what they showed, there was an overall drop in the combined bankruptcy and voluntary arrangement figures on both the last quarter and the same quarter last year, no it was the expectation that the numbers are likely to soar next year. There are a number of factors that will contribute to this; credit rejections are increasing, past increases in the cost of borrowing is biting and house value growth has levelled off. The tougher stance taken by the bank's towards individual voluntary arrangements will also result in a significant increase in bankruptcies and home repossessions next year.
An anticipated drop in interest rates in the near future will be too little, too late for many people.
In the light of the Northern Bank problems and the fall out that is still being felt from the "credit crunch" it is not surprising that we continue to see a rise in the numbers of insolvencies both corporate and personal…
As can be seen from the chart below, since the drop in numbers from the heady heights of the early 1990's, total corporate insolvencies, which includes Receiverships, Administrations, Liquidations and Company Voluntary Arrangements, have bumped along at between 15,000 and 20,000 per year and 2007 is shaping up to be not too different. This constant trend reflects the relative benign economy that has existed in recent years and is a reflection of the Government's policies over the years to move away from the boom and bust economy that existed pre 1990.
Problems at The Sky Blues
The financial problems at Coventry City Football Club continue, with the threat of Administration and a 10 points deduction from their season's total, a daily reality. Coventry needs a top flight club and we wish the Club every success in finding a new investor.
In Defence of Pre-Packs
There have been a number of recent cases that have highlighted the practice of setting up and agreeing a deal to sell the assets of a failing company prior to insolvency, usually be way of Administration, which is then immediately completed after the appointment of the Administrator. The practice known as a Pre-Pack gets a bad press because as it appears that one day a business fails and the next a new company is in being with no debts, trading from the same location, doing the same thing and often with the same people.
In reality, the profile and structure of companies has changed over recent years, gone are the times when a company would own a freehold property, lots of unencumbered stock and fixed assets and hold a debtor book that could be used by a Receiver to fund trading whilst a buyer for the business was found. Today, the company is more likely than not to be a service business, hold most of its assets under finance agreements, will have factored its debtor book and the true value of the business may vest in just a few key people, often the owners of the company. If the insolvency practitioner waited for the formal insolvency procedure to be announced before seeking a buyer, the value of the business would immediately evaporate and there would be nothing to sell and all the jobs would be lost.
By using the Pre-Pack, the speed of sale from insolvency can result in minimal disruption to the business and the customer base, content that there will be no interruption to supply, will remain faithful. Jobs are saved and although creditors will have suffered a loss, there is still a business in operation to which they can continue to sell their goods and services.
At Cranfield Business Recovery we ensure that any Pre-Pack with which we are involved has been properly researched and the value that we achieve is the best that is available in the circumstances. Pre-Packs will always be controversial, but if done properly can and do produce the best results in difficult situations.
Heavy Handed Debt Collectors
Individuals in Coventry and Warwickshire are being pursued more aggressively than ever by creditors according to a recent report. These findings are supported by our personal experiences when meeting debtors who report that they are receiving constant telephone calls at all hours of the day and night. The Warwickshire Citizens' Advice Bureaux have also highlighted one case where a father was told to put his daughter into care so that he could get a night job and in another, a disabled man was called 87 times in two weeks.
The office of Fair Trading has guidelines in respect of debt colleting but it appears that these are being ignored by some companies and their agents as more heavy handed tactics are being employed.
The CAB has linked up with the Warwickshire Trading Standards to make a number of recommendations which include imposing financial penalties on organisations that consistently flout the guidelines, naming companies that break the rules and increasing the awareness of the guidelines and debtors' rights.
Companies Act 2006
By now most of you we are sure will have received or even issued briefings and summaries on the new Companies Act, a wholesale reform of UK company law.
In this newsletter we want to highlight just one particular aspect of the new Act and that is Directors' Duties. The new Statutory Statement of Directors aims to codify existing common law obligations of company directors and to capture the cultural change in the ways in which companies conduct their business. In a statement in June 2007, the Minister of State for Industry and the Regions, Margaret Hodge, summed up the Government's justification for the new code thus; "The relationship between business interests and the wider world is changing all the time. The best way of achieving lasting cultural change is to go with the tide and the broad consensus of opinion".
Therefore to go with the tide, directors must;
Coming into force 1 October 2007
- Act in accordance with the company's constitution and to exercise their powers for the purposes for which they are conferred,
- To act in the way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole,
- To exercise independent judgement,
- To exercise reasonable care, skill and diligence,
Coming into force 1 October 2008
- To avoid conflicts of interests,
- Not to accept benefits from third parties,
- To declare any interest in a proposed transaction or arrangement with the company.
Despite recent comment and guidance, there remains considerable uncertainty about the meaning of certain aspects of the new law and its practicable implications and we will no doubt see a new raft of case law to clarify the position, the very thing the new code was meant to consolidate.
Meet the Team Brett Barton – Director
As reported last quarter, Brett successfully passed his Joint Insolvency Examination Board exams in March 2007 and when he obtained his license in May 2007, he became a director of Cranfield Business Recovery Limited and took his first appointment in July 2007.
Since qualifying Brett has also been short listed as one of four Coventry First's Young Professional of the Year, not a bad year so far then.
Brett joined Cranfield Business Recovery in October 2004 and quickly established himself as a highly competent and enthusiastic member of the team, whose technical and organisational abilities were soon being felt throughout the firm.
Brett says, "Although I work in a sector that some might find depressing, I derive a great deal of satisfaction from seeing a business move on from its current financial difficulties, saving jobs and still operating in the market place acting as both a customer and a supplier to other businesses.
I think that we are going to get busier over the coming months although as always, there will continue to be successful businesses and it will be those who are quick to spot the changes in their market place and who have good advisers that are the ones that will survive and continue to prosper".
Outside of work, Brett coaches a ladies volleyball team in Alcester and the team went on tour to Belgium this year, Brett even driving the minibus himself.
Cranfield Carting Challenge
The final of this year's Carting Challenge took place in September at Whilton Mill's National Circuit, with all 16 teams taking to the track for the two hour endurance race using 60mph twin engine karts. The race was as usual full of incidence and every team had a tale of woe to tell, none more than the Cranfield team who managed to destroy two Karts before being refused a third (we think they had ran out).
In a very close finish, a very late black flag penalty stop by the marshals denied Brindley Twist Tafft and James overall victory, which instead went to the team from National Westminster Bank, just ahead of Shortland Horne, last year's winners, with Brindley Twist coming in third. We wish to thank all those who took part in this year's challenge and confirm that we will be doing it again next year. If you are interested in finding out more details about next year's event please contact Natalie on 02476 553700.
Cranfield Business Recovery employs 10 people and is based in Coventry. It was founded in 2001 and moved from Warwick to Coventry at the end of 2006. Cranfield Business Recovery deals with all aspects of corporate, business and personal financial problems.
Tony Mitchell is a Licensed Insolvency Practitioner, a fellow of the Association of Chartered Certified Accountants and a member of the Midland's Regional Committee of the Association of Business Recovery Professionals. Brett Barton is a Licensed Insolvency Practitioner and is vice chairman of Coventry First Young Professionals.