Corporate

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 Q2 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 third quarter of 2009, 85% of bankruptcies were made on the petition of the debtor, slightly down on the previous quarter, although figures remain slightly higher than throughout 2008 as a whole. The percentage of bankruptcy orders involving trading debts (self-employed bankruptcies) was 13.1% in the second quarter of 2009 (third quarter 2009 figures for trading-related bankruptcies are not yet available), which is a decrease from 13.7% in the previous quarter, but a little higher than throughout 2007 and 2008.

By Gary Saxon, senior manager for Lloyds TSB Commercial in Coventry

Small businesses are at the heart of the economy. Together they employ more than half of the UK workforce and have a key role to play in a market recovery. Many small to medium-sized enterprises (SMEs) in Coventry are still under pressure, but now is a good time to begin implementing strategic business plans such as diversifying products and services, improving efficiency or targeting new international markets.

Firms that invest time and capital into executing these strategies can gain a crucial competitive advantage and ensure they are able to seize the opportunities presented by a change in economic conditions. However, implementing investment plans can put pressure on cash flow, so it is vital SMEs secure the right funding to support the company’s ambitions.

There is a wealth of options available alongside traditional loans and overdrafts, so management teams should work closely with their banking partners to find the most suitable solution. One option is the Enterprise Finance Guarantee (EFG) scheme, which enables viable UK businesses with a turnover of up to £25 million to access Government-guaranteed loans.

The £1.3 billion initiative guarantees lending to viable businesses that lack the security required to obtain conventional finance. It can also be used to fund part of an existing overdraft facility in order to free up working capital and improve liquidity.

Lloyds TSB is one of the most active lenders, accounting for 28 per cent of all loans offered by volume (to over 1,500 businesses since mid-January). Funding is available for viable businesses – the South Midlands team’s year-on-year lending balance has increased by 19.5 per cent. Above all, it is important to remember that lenders are looking for a strong management team and a sound business plan that demonstrates return on investment and evidences how the investment supports the long-term strategies of the firm.

If you have any comments on Gary’s article please let me know. – TM

It does not take an economics expert to predict that tax increases are on the way. The skill is being able to predict where and when. This autumn's Pre-Budget Report will be on Wednesday 9 December at 12.30 pm and we will have a better idea then.

The ones we have an eye on are a possible rise in Capital Gains Tax from the currently attractive rate of 18% and maybe an adjustment to the generous Entrepreneurs Relief. Why is an Insolvency Practitioner looking at such matters you may be wondering? The answer is that a very tax efficient method of distributing the value of a company back to the shareholders is though a solvent Members’ Voluntary Liquidation (“MVL”) and any movement in respect of the aforementioned taxes may have a material impact on the tax payable.

If you have any clients or customers that are thinking of selling up and getting out (and who could blame them!) now is the time to be thinking about acting rather than risk the higher tax rates that may be on the way. Better the Devil you know.

The Financial Reporting Council (“FRC”) has published a new 31 page guide for directors of UK companies to assist them in making their assessment of going concern. The new guidance is relevant to directors of all companies, including subsidiary companies.

With effect from 31 December 2009, the new guidance replaces the original 1994 Guidance for Directors of listed companies, the interim updated Guidance issued last year, and the interim Guidance for smaller companies earlier this year. The Guidance does not apply to interim management statements.

Directors need to evaluate which one of the following three potential conclusions is appropriate to the specific circumstances of the company;

• there are no material uncertainties that may cast significant doubt about the company’s ability to continue as a going concern; or
• there are material uncertainties related to events or conditions that may cast significant doubt about the company’s ability to continue as a going concern but the going concern basis remains appropriate; or
• the use of the going concern basis is not appropriate i.e. the company has no realistic alternative but to cease trading or go into liquidation or the directors intend to cease trading or place the company into liquidation.

The Guidance is available on the FRC web site at:

http://www.frc.org.uk/publications/pub2140.html

In my last quarter’s Newsletter I discussed the need for directors to make sure they put in place security before injecting loan account funds into their companies. Borrowing from external sources is still difficult and therefore we are seeing a large number of directors continuing to inject personal funds into their companies to ease cash flow.

I make no apology for repeating the message that securing money advanced to a company by way of a debenture is a relatively simple process and should always be considered by directors before any funds are advanced.

At Cranfield Business Recovery we are able to advise directors, thinking of introducing their own money into their company and how to improve the chances of recovering that money if things do not go according to plan.

The fourth and final round of the Cranfield Carting Challenge Cup took place at Priory Park, Tamworth in September and unlike our earlier visit in the year, it did not rain. If you have never been karting at this venue I highly recommend it.

Our congratulations go to this year’s 2009 Cranfield Carting Challenge Cup winners; Wallace Crooke & Co, Chartered Accountants and Business Advisors, who over the season’s four races, were always in the hunt and that consistency paid off at the end of the season.

I would like to thank all those who participated in this year’s event and hope that you all enjoyed the various circuits we attended throughout the year. Watch out for news as to whether we do it again next year.

Many of you will have received our message earlier in the month of the changes to our website and the exciting development of being able to subscribe to our RSS feed that will automatically notify you of our latest blog posting. For those of you who have not had the opportunity to review our blog, it is our monthly review of the insolvency sector and we aim to highlight topical issues for our business contacts.

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 the process.

Following the success of our earlier TechBite LIVE seminars, aimed at providing helpful hints and tips to professionals, we hope to resume the series in the New Year.

For more information on our seminar topics please contact us or see our website for more details.