The numbers above and the graph below (Figure 1.) graphically demonstrate the impact the current economic slowdown has had on corporate failures. In the 12 months ending Q1 2009, approximately 1 in every 130 companies (0.8%) went into liquidation.

Apart from the run off receivership numbers, the % increase in the number of insolvencies compared to the last quarter was modest but the striking point is the significant % increase compared to the corresponding quarter last year. I think we will continue to see a steady upward trend over the coming quarters.  

Figure 1. Company Liquidations in England and Wales

Source: Insolvencies Service and Companies House

The ever upwards numbers in personal insolvencies continues (Figure 2.) and given the current economic climate and the increasing levels of redundancies, it must be assumed that we are likely to see record numbers of bankruptcies during 2009, possibly exceeding 100,000 during the year.

Of the total number of bankruptcy orders made, over 85% are as a result of debtors presenting their own petitions, as opposed to being made bankrupt by a creditor. This is the highest % in the last ten years and is evidence of the fact that faced with a mountain of consumer debt, bankruptcy has become the more popular option over Individual Voluntary Arrangements by a ratio of almost 2:1.

Figure 2. Individual insolvencies in England and Wales

Source: Insolvency Service

The first meeting of the new House of Commons West Midlands Select Committee was held on 20 April and representatives from the four major UK banks sat before the Committee and were questioned by members of the Committee and insisted that they were open for business.

The Committee is boycotted by the Conservatives and Liberal Democrats but four Labour MPs questioned senior Midlands’ bankers as to their approach to SMEs during this recession. The Coventry & Warwickshire area is represented by James Plaskitt whose constituency is Warwick & Leamington. The formal minutes have not yet been released but some comments made by each of the banks were;

• HSBC reported that they are working with Business Links so that Business Links advisers know about the Enterprise Finance Guarantee scheme;
• Lloyds TSB claimed that it was more difficult to put money into Community Development Finance Initiatives (CDFIs) – basically small community loan schemes for SMEs – as business demand is mainly for overdrafts rather than loans;
• Barclays claimed it gives out SME loans – on average – every 70 seconds;
• Nat West gave a commitment to the Committee that if they sent them examples they would investigate any complaints of loans and overdraft requests that customers believe have been unfairly turned down.

I will leave it for you to you to decide how “Open for Business” the banks actually are at the moment.

As we have seen, the numbers of liquidations are continuing to climb, so what should the company director be asking when deciding whether anything from the company can be salvaged.

He/She should be asking…

What constitutes the business and is there a part of it that can be taken forward?
Does the company design, manufacture or provide a service that stands out from the competition. The key is to identify what elements of the old company could be restructured into a new business.

How will the new business be funded
A new business will have no access to the funds previously available to the old company such as debtors. New working capital will be needed particularly as suppliers to the new business are likely to insist on cash on delivery and it could be eight weeks before customers pay for goods or services provided by the new company. So where will the cash come from? It is unlikely funds will be available from traditional sources (banks and other lenders) so what other personal wealth is available (equity in a house for example) which could be used? Can a family member or friends offer support? Factoring the new debtors may also be an option. It’s at this stage when the very difficult question has to be asked – “do I have to walk away from the business completely?”

Is there a customer base and is the product or service still in demand?
If the business has lost its largest, or worse still, its only customer, it may be very difficult to find new customers quickly enough for a new company to get off the ground. Customers may be reluctant to deal with the new company having seen the old one go into liquidation. Communication with customers is vital.

One of the reasons for business failure is that the market is no longer interested in the product or service being offered. Conversely the product may be fantastic but it is being sold into a very narrow market. This could be the opportunity to refocus the marketing and to develop new markets on a global scale!

Do you have the right people left in your business to take things forward?
Think about the people in the existing business and decide whether they are suitable to make the new business work. If not, liquidation gives the opportunity to restructure staffing levels.

Do you have good advisers?
Good advisors are essential during this difficult period and it is vital that all directors facing the possible liquidation of their company have professionals working for them that will deliver practical, high quality advice at a price that is affordable.

The word “Phoenix” is seen by some as negative but I believe if done correctly, a new company can rise from the ashes of the old company and offer opportunities to business owners, employees and suppliers to make something good out of a difficult situation

This year's Cranfield Carting Challenge Cup is underway and last year’s winners Brindley Twist Tafft and James, solicitors, are already under pressure as they try to retain the trophy.

The first of this year’s four rounds was held just outside Nuneaton and was won by Chartered Accountants Wallace Crooke & Co. just ahead of solicitors Needham & James and Chartered Accountants Dafferns in third place.

Planning for this year's Summer Garden Party is well underway and you should be putting a note in your diary to be available on the evening of Tuesday 7 July 2009.

P.S. Don’t forget to check our fortnightly blog for all our latest news and events at www.cranfieldbusinessrecovery.co.uk/blog.