Britain�s go bust at rate of one per minute

One person is falling victim to insolvency every minute of the working day and home repossessions show the largest increase since the housing crisis of the early 1990s.

This quarter�s insolvency statistics published last Friday (4 August 2006) show more and more people are caught in a debt trap. Between April and June 26,024 people became insolvent, making the total for this year 49,674, with figures expected to surpass 100,000 by January next year. Whilst bankruptcies are slightly down in the quarter Individual Voluntary Arrangements were up nearly 35% on the previous quarter and 153% on the same period last year. As is reported below IVAs are being pushed very aggressively by debt companies with no statistical information as to how successful these arrangements are.

This picture certainly doesn�t look set to improve. There�s been a notable shift in attitudes to credit and debt, and now an apparent willingness to default on debt without the previous social stigma. Watch this space over the next six months � we are at the start of a major societal change as far as personal debt is concerned.

New TUPE Rules Continue to Confuse

In April 2006 the Transfer of Undertakings (Protection of Employment) Regulations 2006 came into force replacing the earlier 1981 legislation. The new Regulations were meant, according to the DTI to �promote certainty and eliminate grey areas� and so successful were the DTI at achieving this stated aim that a member of the House of Lords tried to postpone the introduction of the legislation, realising that it wouldn�t be understood. Unfortunately he failed and the Regulations were enacted.

One of the stated aims of the new regulations is to provide some relief and flexibility in the context of formal insolvencies with some of the employee liabilities being met by the National Insurance Fund instead of the person acquiring the business. Unfortunately the language is so vague and imprecise it is unclear when the provisions are meant to apply and what liabilities will be met by the Fund.

Guidelines issued by The Redundancy Payments Directorate appear to conflict with both the wording of the Regulation and the interpretation by the DTI and therefore at the moment advising clients on the effects of TUPE is fraught with difficulty. R3, the Association of Business Recovery Professionals, is lobbying hard seeking clarification. In the meantime, beware when advising clients on TUPE issues.

A real case of Legislators 0 Confusion 1.

As soon as we have a clear interpretation we will cover the topic in the newsletter and if needed run information seminars for our contacts. Call Tony Mitchell on 01926 450414 if you are worried that any of your clients could be caught up in this legislative nightmare.

What Makes a Good Insolvency Practitioner?
Following our article last month explaining a little more about the IPs lot we look this quarter into the characteristics of a good insolvency practitioner.

1. Intuition � a gut reaction to know instinctively that something is right or wrong, whether an approach will succeed or fail or whether a management team are committed or not and able to take a business forward.
2. Commercial awareness � we deal with a vast array of businesses, and need to have a broad commercial awareness gained through experience to spot the weak points and maximise the strengths.
3. A safe pair of hands � we need to be trusted by all parties involved that we will get the job done. With this trust comes immense responsibility.
4. Communications skills � we need to be able to keep everyone informed � creditors, clients, intermediaries � whilst at the same time getting the job done.

If you think you know someone who�s got what it takes to become a good insolvency practitioner ask them to call Tony Mitchell on 01926 450414. We are always interested in speaking to people with the right skills and talent.

IVA Failures

The introduction of the Voluntary Arrangement process in 1986, for both corporate and personal clients, has been a very useful turnaround tool available to insolvency practitioners but is it in jeopardy of being a victim of its own success. We sincerely hope not.

The number of people signing up to Individual Voluntary Arrangements (IVAs), as you have seen in the latest insolvency figures above, are reaching all time highs with advertising in newspapers and on television and radio drawing more and more debtors into the arms of large operations, centrally based, with a team of nationally spread self employed �consultants�. The advertisements promote a way of reducing what a debtor has to pay back to creditors by way of a monthly contribution and it can all be put in place for free. What is not always made clear initially is that if the debtor is a home owner, at the end of 5 years (remember bankruptcy only lasts 1 year), there may be a requirement to have their home revalued and the property re-mortgaged to introduce the capital increase value into the Arrangement.

Unfortunately, what is not known, is how many of the thousands of IVAs that are being set up, successfully reach their full term, without the debtor defaulting and subsequently being made bankrupt. In our opinion the figure must be high and is leading to an increasing skepticism of the whole procedure. For some time now insolvency practitioners have been required to report annually on how many of their IVAs fail in the first 12 months. At Cranfield Recovery we are pleased to report that we have had no such failures.

Almost all personal insolvency today involves credit cards or bank loans � institutional debt in other words. It seems that the banks and credit card companies have sub-contracted the decision making process of whether to accept or reject an IVA offer to a small number of the large accountancy firms. From our experience an arbitrary minimum rate of 35p in the �1 appears to have been set before the institutional creditors will accept any IVA proposals. This is having a significant impact on the ability of insolvency practitioners like us to meet the needs and the interests of both creditors and the debtor.

At Cranfield Recovery we are not competing with the national operators - we don�t run a high volume IVA operation, instead we provide a bespoke personal service, giving considered advice but we are finding it increasingly difficult to recommend the IVA procedure against the backdrop of the increasing number of inappropriate IVA proposals being sent out.

A recent case below shows the difficulties of making IVAs a success in the current climate.

Meet the Cranfield Team

Cranfield has welcomed a new team member since our last newsletter. Baldir Nath has joined as an insolvency administrator and is supporting Tony and the team on all aspects of corporate and personal insolvency and turnaround work.

Baldir previously worked in the telecommunications industry. A family man, Baldir enjoys various sporting activities including running and weight training.