Tony Mitchell
Managing Director
02476 553700
Business Rescue & Insolvency Newsletter
Bumpy Times Ahead
In last quarter's Newsletter I asked the question "Is there a recession looming or not?" Well, three months on the picture is no clearer, if anything it is more confused than ever. If you are connected to the building trade, the transport industry or retail then we already have the answer — yes. Outside of these sectors, however, things are not all doom and gloom and speaking to some accountants they are reporting that, yes it is tough but clients are managing and in some cases making record profits.
So where does this leave us? This quarter's figures issued by The Insolvency Service on Friday unsurprisingly show a continuing increase in corporate insolvencies although individual insolvencies are pulling back from their all time highs.
This month's conclusion — hold on to your hats we are still in for a bumpy ride over the coming months.
Insolvency Latest — Quarter 2 2008, Published 1 August 2008
| No. In Quarter | Change On Previous Quarter | Change On Same Period Last Year |
|
|---|---|---|---|
| Company Liquidations | 3,560 | +11.6% | +15.0% |
| Receiverships | 177 | +11.3% | +129.9% |
| Administrations | 938 | +9.2% | +60.3% |
| Company Voluntary Arrangements | 131 | -6.4% | +28.4% |
| Bankruptcies | 15,297 | -1.3% | -5.7% |
| Individual Voluntary Arrangements | 9,256 | -3.2% | -12.4% |
Source: The Insolvency Service (1 August 2008).
No surprises in this quarter's insolvency figures released last Friday by The Insolvency Service. Across the board on the corporate front we are seeing significant increase in all corporate insolvency procedures on this time last year and except for CVA's (always an oddity), they have also increased compared to last quarter.
Looking at the trend in company liquidations, as shown below, we can see that liquidations are moving away from recent low points and I think we will see this trend continuing over the next few quarters at least.
Administrations are still seen as a popular insolvency route as more businesses fall victim to the tougher conditions and as the number of buyers decrease, as the banks continue to rein in lending, I expect to see a lot more pre-packaged administrations, where a buyer is found for the business before it enters an insolvency process.
For individuals the numbers entering into bankruptcy or agreeing an individual voluntary arrangement remain off their 2007 highs but are still double the numbers they were back in 2004 as the table below shows. There is still a long way to go for the personal debtor and we may yet still see the numbers increasing as the cost of living continues to increase at a level far greater than the Government wants to admit.
Distribution of Capital outside Formal Winding Up — Clarification from Treasury Solicitor
Generally speaking, a company may only make a return of capital to shareholders:
- With the approval of the court
- Where the company redeems or purchases its own shares, or
- Where there is a distribution of assets to members in a winding up
An unauthorised return of capital to shareholders gives the company the right to recover the money from its members. Where a company is dissolved, that right would normally pass to the Crown as bona vacantia, and the Crown would have the right to recover the distribution from the members.
Using a Section 652 strike off and extra-statutory concession C16, the Treasury solicitor will waive the Crown's right to any funds which were distributed to the former members prior to the dissolution if the amount of the capital distribution is less than £4,000.
Two questions have been raised in connection with this concession. First, is the figure of £4,000 intended to refer to a distribution of normal share capital only, or to all reserves which would otherwise be undistributable, including for example the share premium account? Secondly, is it intended to include distributable as well as undistributable reserves?
Following clarification, R3 has been advised by the Treasury Solicitor that the figure of £4,000 is intended to cover all undistributable capital reserves, including share premium account and capital redemption reserve accounts. It is intended to apply only to distributions which would otherwise be unlawful and therefore does not include lawful distributions, i.e., distributions made out of profits.
The clarification is welcome but our advice is still that where there are significant sums involved, a formal members' voluntary liquidation should still be the preferred advice.
Fixed Charge or Non Administrative Receiverships
The appointment of Receivers is increasing. Unfortunately, the data provided by the Insolvency Service does not distinguish between the number of appointments of Fixed Charge or Non Administrative Receivers and Administrative Receivers and therefore one has to rely on anecdotal evidence that the numbers are on the up.
A Receiver has his origins back in the 16th Century and was someone who was appointed by those owning property in order to protect that property for the benefit of those entitled to it.
These days it is the more common that a Receiver, often styled an LPA Receiver, to be appointed over a specific asset, usually a property, by a lender, who has security over that property and where a default by the borrower has occurred. The Receiver is appointed to manage and realise the property and pay the proceeds to the lender.
A Fixed-Charge Receivership is a relatively cost-effective way of securing recovery in certain distressed situations. It is a simpler vehicle to run than Administration or an Administrative Receivership with less formal requirements for reporting and, depending upon the nature of the charge or status of the borrower, allows the lender to secure speedy control of the asset.
The ability of the lender to separate the fixed from any floating elements of the security is a crucial aspect of the Appointment.
As a lender, or when advising lenders, it is always worth considering appointing a Fixed Charge Receiver rather than an Administrator or Administrative Receiver for the above reasons.
Tony Mitchell is a Registered Property Receiver and a member of the Association of Property and Fixed Charge Receivers an organisation that aims to promote the Registered Property Receivership (RPR) Scheme and the use of RPRs in Fixed Charge Receiverships.
TechBite LIVE Seminars
Our second seminar in our TechBite LIVE series will be take place in September at the newly redeveloped Herbert Art Gallery. The seminar will focus on the real life issues faced by business owners with accrued historic debt, wanting to start again. Please contact Natalie to register your interest on 02476 253 291 or email her at natalie.lagopoulos@cranfieldbusinessrecovery.co.uk.
Out and About with Cranfield
July was a very busy month and we had a number of occasions to catch up with acquaintances, the first being our annual Cranfield Summer BBQ which was held in the gardens of our offices in Coventry. In the middle of what was a very wet week, the sun shone intensely and allowed us to make good use of our gardens to enjoy some good music, good food and good company.
A much more adrenalin pumping affair was the penultimate race in The Cranfield Carting Challenge. The intensity of competition is increasing and congratulations go to Needham and James and The Royal Bank of Scotland for winning their respective heats. Brindley Twist Tafft and James take the overall top spot going into the final round and we are sure everyone will be getting some practice in before the final at Daytona Milton Keynes International Circuit on 16 September.
Our July Early Bird Golf Society meeting saw some very well timed sunshine (again!) and we were fortunate to get a warm and dry morning. It was good to see regular faces back as well as some newcomers and congratulations to Paul Thacker of The Royal Bank of Scotland for winning the 9 hole event with 21 stapleford points. If you do not already receive the email from Natalie with all the details of the Society's meeting dates, please contact her on 02476 253 291 or email her at natalie.lagopoulos@cranfieldbusinessrecovery.co.uk.
P.S. don't forget to check our fortnightly blog for all our latest news and events at www.cranfieldbusinessrecovery.co.uk/blog/.