Welcome to the first 2010 edition of our quarterly newsletter and to the accountants reading this, aren’t you glad it’s February.

From the premature talk of green shoots in 2009, we at last have evidence (subject to revision) that the downturn has come to an end and according to bosses at the Nationwide Building Society we can expect double digit growth in house prices on an annual basis next month.

Against this back drop, the latest figures from The Insolvency Service were issued last Friday showing that overall, corporate insolvencies were down 3.1 % on the previous quarter, being the third % reduction in a row, perhaps supporting the view that we are over the worst.

I sense real optimism returning to the Midland’s market place and I constantly hear stories of businesses doing very well during these current difficult times. The real challenge this year, however, is how businesses survive if we have another flat year. If they have already cut all the costs that can be cut and eaten into their reserves to get this far will they be able to make 2011? Time will tell.

Corporate

The latest figures show a quarter on quarter reduction across the board for Liquidations, Receiverships and Administrations. Interestingly, there was a fifth consecutive increase in the number of Company Voluntary Arrangements being approved by creditors, perhaps reflecting creditor sympathy to well managed companies suffering in the current difficult economic climate.

The graph above for corporate insolvencies shows that both compulsory and voluntary Liquidations appear to have peaked during the first half of 2009 giving support to the generally held belief that the economy is over the worst. In the twelve months ending Q4 2009, approximately 1 in 114 active companies (or 0.9%) went into liquidation, which is approximately the same as the previous quarter.

Individuals

Personal

There were 35,574 individual insolvencies in England and Wales in the fourth quarter of 2009, giving a total of 134,142 for 2009. This was only an increase of 1% on the earlier quarter, although a 25% increase on the same quarter a year ago. The annual total represents 1 in every 320 adults entering an insolvency procedure during 2009.

The Debt Relief Order (‘DRO’) is a new individual insolvency procedure which came into force on 6 April 2009 and which provides an alternative route into personal insolvency for certain categories of over-indebted individuals, subject to some restrictions. Some of those who had a DRO approved in Q4 2009 would have been declared bankrupt had the DRO route not been an option, but it is not possible to quantify this proportion.

In the fourth quarter of 2009, 84% of bankruptcies were made on the petition of the debtor, slightly down on the previous three quarters but comparable with 2008 as a whole. Overall, however, there continues to be a pronounced shift towards debtor’s petition bankruptcies and away from creditor’s petitions in recent years.

Fact – the Government faces a huge problem in attempting to rebalance the finances of the UK.
Fact - Taxes are going to have to rise.
Fact – It is you, me and your clients and customers that will pay.

Having spoken with a number of specialist tax advisers, it is clear that the gap between the income and capital rates of tax will have to close and it is likely that the largest burden will fall on capital taxes to narrow this margin.

It therefore comes as no surprise that facing the uncertainty of the political situation in the UK, together with an increasing debt burden, business owners are again looking at exit strategies from their businesses to crystallise their capital tax liability under the current regime, which in my view is generous compared with income tax rates.

Do you have any clients that are currently developing their exit strategy from their business? Perhaps it’s time for them to consider a Members’ Voluntary Liquidation as an option and receive a distribution of the assets of the company in the current tax year, whilst the generous provisions still apply. There is still a window of about 4 weeks to commence the process and receive the payment before 5 April 2010 but please don’t leave it until the last minute! Can your clients afford to wait and risk the possibility of an increase of the 18% rate or an abolishment of the Entrepreneur’s Relief?

If you would like further advice in this area then please contact Brett Barton who will be pleased to provide further guidance. Similarly, if you would like a copy of the previous MVL article where we outlined the risks of s.652 vs MVL and the implications of ESC C16 then get in touch.

A recent survey has revealed that the government is behind almost half of all court petitions aimed at forcing companies into compulsory liquidation. This is against a backdrop of calls from government ministers and other groups of creditors urging the taxation authorities to do all they can to help struggling companies stay in business.

It appears that during the last six months, HM Revenue and Customs filed 43% of all creditors’ winding up petitions into Court in efforts to recover debts.

During 2009 HM Revenue & Customs were offering “time to pay” agreements but the feedback that I am getting from Coventry and Warwickshire accountants is that it is getting harder to agree a structured repayment deal and it is very difficult if a company is already behind with its tax payments.

In my opinion, the tough stance will increase during 2010 as pressure mounts to restore public finances, particularly after the General Election, now almost certain to be held in May. Those who already have deals in place are still very vulnerable because if they miss any payments after an agreement has been reached they will find it almost impossible to renegotiate for a second time.

More than ever it is important for company directors to take early advice from their advisers or from specialists to understand the options available to them and not to stick their head in the sand and hope the problems will go away.

The clear message is to try to reach a deal before missing any due dates rather than afterwards.

Our newest team member is Helen White who joined Cranfield in November 2009. As personal assistant to the directors, Helen will now be your first point of contact when calling or visiting our offices.

Helen has many years of experience in customer service and management roles which we are certain will be put to good use when looking after our clients and supporting her colleagues. With her creative flair and fresh ideas, Helen will also play a key part in the development and execution of our existing marketing strategy.

Helen looks forward to assisting you in the near future.

At the end of last year we revamped our online blog and every month we post an update on some of the key changes or issues in the insolvency industry. We also enhanced the service by allowing subscribers to join our RSS feed so that we will automatically notify you of our latest blog posting.

Subscribing to the RSS feed is relatively straight forward but if you have any problems registering, then please feel free to speak to Brett who will be happy to guide you through.

Techbite Live Seminars

Our first TechBite LIVE seminar of 2010, aimed at providing helpful hints and tips on insolvency related issues to Coventry and Warwickshire professionals is scheduled for April and invitations will be going out in the next few weeks. If anybody is particularly keen to ensure they receive an invitation please let Helen know as soon as possible. 

Indoor Rock Climbing

In December, some 20 Coventry and Warwickshire business professionals joined us for a two hour session of indoor rock climbing at Warwick Universities’ challenging “Black Rock” complex. Most had never tried the event before and clinging to a rock face 30 meters up they realised why. Even in the knowledge that a full safety harness was being worn, it still felt a very daunting experience when looking back down at colleagues and friends below. Brett would like to thank Alan Howe of Allied Irish Bank for not abandoning the rope when he missed a foot hold.

All were grateful that the event could be discussed afterwards at a Christmas lunch at The Cross in Kenilworth where we were joined by a few more of Coventry and Warwickshire’s finest, who for varying reasons of physical infirmities, were not able to join in the actual event. A big thank you to all those that attended to make the event such a success.

Cranfield Carting Challenge Cup

With the start of the New Year comes the prospect of a new season of karting challenges in the four heat series of the Cranfield Carting Challenge Cup. Plans are in hand for eight teams from professional firms in Coventry and Warwickshire to pit their driving skills against each other to see who will be the 2010 champion and receive the trophy from last year’s winners Wallace Crooke & Co. Chartered Accountants.

The first race will be in March at a venue still to be confirmed.

"If the facts don't fit the theory, change the facts." -Albert Einstein