Wednesday, 28 July 2010
Premier League defends preferential insolvency rule
The debate rages on!! The Football Association ("FA") has started its defence of the (in my view) totally unfair Football Creditors Rule ("FCR") which it claims gives it super-preferential status over any other creditor in a formal insolvency of a FA football club. See the article in Accountancy Age here.
In no other industry does a creditor command anything like the "ransom" status in terms of priority of payments over any other creditor in a business that becomes insolvent. What the FCR means is that football-related creditors in a failed football club get paid before ANYONE else does. When a football club fails due to rampant profligacy (sorry - bit incensed over this!) why should its governing body and (usually) highly paid footballers and their agents have the advantage over everyone else? Surely the FA should be taking steps to govern its clubs properly so insolvency doesn't happen? In a badly run football club, all creditors should be treated like any other creditor, just like any other business...
The bank of HMRC is right to challenge the FCR.
Wednesday, 14 July 2010
Young at more risk of insolvency than old
An interesting article from R3 about the difference in attitude between young and old regarding debt and insolvency. This just highlights that younger people are more inclined to see debt as a “way of life” rather than something to try and avoid!
Research from R3, the insolvency trade body, which explores the experiences of people struggling with their debts, reveals that a far higher proportion of younger respondents are more likely to leave their bills unopened and avoid their creditors than older respondents.
• Among those struggling with debt, over a third (36%) of the 18-24 year olds surveyed have not contacted anyone for help as it is ‘easier not to think about it’ compared to just 9% of 55-64 year olds.
• In addition 26% of the 18-24 year olds surveyed say they do not open their bills because they cannot face them, whereas this figure drops down to 10% for 65s and over.
• Similarly 28% of 18-24 years olds surveyed are trying to avoid contact with people they owe money to, whereas this applies to only 11% of 65 year olds and over.
R3’s President Steven Law commented:
“Despite a global recession and near financial meltdown, younger generations are still operating on the basis that high levels of debt are normal and the consequences of this have created a clear generational split. It is extremely troubling that irresponsible attitudes towards debt are entrenched by the age of eighteen as this is likely to lead to a lifetime of financial problems.”
The report also finds:
• Just under a third (30%) of 18-24 year olds cite they ‘don’t know where to go’ as the reason for not contacting anyone for help, compared to 8% of 65 year olds and over.
• Moreover, across all age groups, 44% of those struggling with debts mistakenly believe that debt advice must be paid for.
“If nearly half of those struggling with debts believe incorrectly you need to pay for debt advice, we have little chance of resolving this problem,” added Steven Law. “Most insolvency practitioners, for instance, are prepared to provide their time free for a first meeting with a debtor. Similarly, the Citizens Advice Bureau will provide free advice.”
“In addition, financial advice needs to get away from promoting ‘debt as a way of life’ that some irresponsible lenders use and instead focus on making debt more proportionate to an individual's financial makeup and so avoid long term financial problems,” concluded Steven Law.
This article is attributed to R3 and the press release can be found here.
Research from R3, the insolvency trade body, which explores the experiences of people struggling with their debts, reveals that a far higher proportion of younger respondents are more likely to leave their bills unopened and avoid their creditors than older respondents.
• Among those struggling with debt, over a third (36%) of the 18-24 year olds surveyed have not contacted anyone for help as it is ‘easier not to think about it’ compared to just 9% of 55-64 year olds.
• In addition 26% of the 18-24 year olds surveyed say they do not open their bills because they cannot face them, whereas this figure drops down to 10% for 65s and over.
• Similarly 28% of 18-24 years olds surveyed are trying to avoid contact with people they owe money to, whereas this applies to only 11% of 65 year olds and over.
R3’s President Steven Law commented:
“Despite a global recession and near financial meltdown, younger generations are still operating on the basis that high levels of debt are normal and the consequences of this have created a clear generational split. It is extremely troubling that irresponsible attitudes towards debt are entrenched by the age of eighteen as this is likely to lead to a lifetime of financial problems.”
The report also finds:
• Just under a third (30%) of 18-24 year olds cite they ‘don’t know where to go’ as the reason for not contacting anyone for help, compared to 8% of 65 year olds and over.
• Moreover, across all age groups, 44% of those struggling with debts mistakenly believe that debt advice must be paid for.
“If nearly half of those struggling with debts believe incorrectly you need to pay for debt advice, we have little chance of resolving this problem,” added Steven Law. “Most insolvency practitioners, for instance, are prepared to provide their time free for a first meeting with a debtor. Similarly, the Citizens Advice Bureau will provide free advice.”
“In addition, financial advice needs to get away from promoting ‘debt as a way of life’ that some irresponsible lenders use and instead focus on making debt more proportionate to an individual's financial makeup and so avoid long term financial problems,” concluded Steven Law.
This article is attributed to R3 and the press release can be found here.
Friday, 9 July 2010
Debt and Insolvency: The Full Picture
The Association of Business Recovery Professionals (also known as "R3" - Rescue, Recovery and Renewal) represents Insolvency Practitioners ("IP's") to the general public and more specifically to politicians and journalists. R3's mandate (amongst other things) is to try and educate people not connected with the insolvency profession about what we do.
As part of this, R3 will periodically issue briefing papers on insolvency related subjects and has just issued three very interesting ones!
The first is "Debt and Insolvency: The Full Picture". The full paper can be found on our website here (Useful Stuff/Personal/R3 - Debt Insolvency Paper - March 2010) and in brief, it looks at the various methods of dealing with personal insolvency.
One of the main points that has come from the paper is that the vast majority of people who go through an "informal" solution, such as a debt management plan ("DMP"), feel that they were not talked through all the alternative options, including the formal (bankruptcy and IVA) procedures. In my experience, most individuals in a debt management plan have simply responded to a generic advert in the local paper or on TV along the lines of "get rid of your debts" and are sold a 'product' that doesn't necessarily meet their needs.
IP's are heavily regulated - DMP firms are not regulated, other than having to have a Consumer Credit Licence, and some of the DMP firms I have come across don't even have that! Most DMP advisors also do not have to have any qualifications and usually have little or no experience in giving insolvency advice - they simply concentrate on the DMP product they are selling. Most DMP firms (not all, I hasten to add) are also simply there to get a fee and move on to the next customer, rather than looking after a client - there is a definite difference between "customer" and "client". Can you tell I'm not a great fan of DMP's?
Interestingly, the paper also concludes that the vast majority of people who go through a formal insolvency (e.g. bankruptcy or IVA) believe they will not need help with their finances in the future. This is, in my opinion, because an IP is involved in the formal procedures and the IP will give full, rounded advice on all procedures, as they have the experience and in particular they are REQUIRED to do so by their Regulators.
Over the next few weeks I will issue a blog post on the other two papers:
"Struggling with debt without help"
"Rises in the base interest rate - what effects will it have?"
Please feel free to comment!
As part of this, R3 will periodically issue briefing papers on insolvency related subjects and has just issued three very interesting ones!
The first is "Debt and Insolvency: The Full Picture". The full paper can be found on our website here (Useful Stuff/Personal/R3 - Debt Insolvency Paper - March 2010) and in brief, it looks at the various methods of dealing with personal insolvency.
One of the main points that has come from the paper is that the vast majority of people who go through an "informal" solution, such as a debt management plan ("DMP"), feel that they were not talked through all the alternative options, including the formal (bankruptcy and IVA) procedures. In my experience, most individuals in a debt management plan have simply responded to a generic advert in the local paper or on TV along the lines of "get rid of your debts" and are sold a 'product' that doesn't necessarily meet their needs.
IP's are heavily regulated - DMP firms are not regulated, other than having to have a Consumer Credit Licence, and some of the DMP firms I have come across don't even have that! Most DMP advisors also do not have to have any qualifications and usually have little or no experience in giving insolvency advice - they simply concentrate on the DMP product they are selling. Most DMP firms (not all, I hasten to add) are also simply there to get a fee and move on to the next customer, rather than looking after a client - there is a definite difference between "customer" and "client". Can you tell I'm not a great fan of DMP's?
Interestingly, the paper also concludes that the vast majority of people who go through a formal insolvency (e.g. bankruptcy or IVA) believe they will not need help with their finances in the future. This is, in my opinion, because an IP is involved in the formal procedures and the IP will give full, rounded advice on all procedures, as they have the experience and in particular they are REQUIRED to do so by their Regulators.
Over the next few weeks I will issue a blog post on the other two papers:
"Struggling with debt without help"
"Rises in the base interest rate - what effects will it have?"
Please feel free to comment!
Wednesday, 7 July 2010
The OFT misses an opportunity - part 2
See my previous post in June for the first instalment!
Once again, the OFT is demonstrating that it has missed the point on their own review of the Insolvency Profession - see the article in Accountancy Age here. The OFT is proposing an independent complaints body be set up to deal with complaints against Insolvency Practitioners ("IP's"), funded by a levy against the IP's themselves. This levy is simply likely to put up the cost of what is already perceived to be an expensive profession.
Every professional (be they lawyer, accountant, financial adviser etc) will inevitably have complaints made against them when clients aren't happy. Genuine complaints, based on the professional making a mistake, I feel are few and far between. Most "complaints" against IP's usually arise because a complainant doesn't understand why the IP has done something in particular and they feel they have been disadvantaged. This stems from a simple lack of knowledge by the complainant in relation to what is a highly legislated (and particularly these days) highly regulated area of expertise. The secret to avoiding complaints to start with is effective communication and ensuring those affected when a company becomes insolvent (e.g. employees, directors, creditors etc) fully understand what an IP has to do and how he needs to do it.
There are already mechanisms in place for making and dealing with complaints against IP's - setting up yet ANOTHER body is totally unnecessary and just further muddies the waters. I suppose that it will inevitably happen, but my opinion is that it isn't needed.
Once again, the OFT is demonstrating that it has missed the point on their own review of the Insolvency Profession - see the article in Accountancy Age here. The OFT is proposing an independent complaints body be set up to deal with complaints against Insolvency Practitioners ("IP's"), funded by a levy against the IP's themselves. This levy is simply likely to put up the cost of what is already perceived to be an expensive profession.
Every professional (be they lawyer, accountant, financial adviser etc) will inevitably have complaints made against them when clients aren't happy. Genuine complaints, based on the professional making a mistake, I feel are few and far between. Most "complaints" against IP's usually arise because a complainant doesn't understand why the IP has done something in particular and they feel they have been disadvantaged. This stems from a simple lack of knowledge by the complainant in relation to what is a highly legislated (and particularly these days) highly regulated area of expertise. The secret to avoiding complaints to start with is effective communication and ensuring those affected when a company becomes insolvent (e.g. employees, directors, creditors etc) fully understand what an IP has to do and how he needs to do it.
There are already mechanisms in place for making and dealing with complaints against IP's - setting up yet ANOTHER body is totally unnecessary and just further muddies the waters. I suppose that it will inevitably happen, but my opinion is that it isn't needed.
Monday, 5 July 2010
HMRC gets tough on football...
Looks like HMRC are beginning to take more and more action against insolvent football clubs - Cardiff FC's turn now - see here.
It has to be said that the "Football Creditor's Rule" is an abuse of Insolvency Legislation. This "rule" is laid down by the Football Association which says that all the "football creditors" must get paid first before any other creditor if the football club in question is to retain its share in the Football Association. If those creditors aren't paid then the club loses its share and can't be an FA Club.
On a practical basis, this gives the football creditors a "super priority" over any other creditor if the club is to be preserved as an FA Club. This priority is against the principles of the Insolvency Act 1986 and the legislation doesn't provide for such a priority. HMRC have long expressed their dissatisfaction over this and Portsmouth FC nearly didn't get its CVA because HMRC was going to vote against it (amongst other matters) in relation to the football creditor rule. The CVA eventually got approved only because HMRC were out-voted.
I think it's only a matter of time before the Football Creditors Rule gets overturned...
It has to be said that the "Football Creditor's Rule" is an abuse of Insolvency Legislation. This "rule" is laid down by the Football Association which says that all the "football creditors" must get paid first before any other creditor if the football club in question is to retain its share in the Football Association. If those creditors aren't paid then the club loses its share and can't be an FA Club.
On a practical basis, this gives the football creditors a "super priority" over any other creditor if the club is to be preserved as an FA Club. This priority is against the principles of the Insolvency Act 1986 and the legislation doesn't provide for such a priority. HMRC have long expressed their dissatisfaction over this and Portsmouth FC nearly didn't get its CVA because HMRC was going to vote against it (amongst other matters) in relation to the football creditor rule. The CVA eventually got approved only because HMRC were out-voted.
I think it's only a matter of time before the Football Creditors Rule gets overturned...
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