An article from Accountancy Age (here) sets out a new criteria being applied by HM Revenue & Customs for accepting Time To Pay ("TTP") agreements.
Basically, HMRC are saying that if owner/director/shareholders are extracting their remuneration from their company in the form of dividends (which is arguably the most tax-efficient way for an individual) then they will not agree a TTP for the company. I'm not pro- (or anti-) HMRC but this seems perfectly sensible to me.
There is a legal requirement under the Companies Act 2006 that dividends can only be paid from distributable profits. Whilst "profits" doesn't always equal "solvent", it is common sense that profits should only be taken if provision has been made to pay a company's future liabilities, which, like it or not, includes amounts due to HMRC. If a company is insolvent (i.e. can't pay its debts as and when they fall due, which is the case if a TTP is on the table) then any "dividends" paid to shareholders are likey to be clawed back by a Liquidator as a preference to the receiving director/shareholder.
If a trade supplier was told they couldn't be paid because the profits had been taken out of the company via dividends for the director/shareholders, then kneecaps would be at risk. Why then should HMRC not enjoy being paid from the profits when everyone else is?
In my view, if remuneration is extracted via a PAYE salary, even though this "costs" more than simply taking out dividends due to the additional tax liability each month, then HMRC is more likely to view a TTP proposal in a better light as it will receive ongoing PAYE/NIC liabilities at the same time as TTP payments. A PAYE/NIC salary would also not be at risk of being clawed back in a liquidation as well!
Come on everybody - be sensible about how a company's liabilities are settled if it hits a rough spot. Better yet, get some advice from an Insolvency Practitioner on how to deal with financial difficulties!
Tuesday, 28 June 2011
Thursday, 26 May 2011
Good advice on running a business
As an Insolvency Practitioner I am regularly referred potential clients by accountants to advise the client on financial difficulties. Very often it is at a point where they are already in financial distress, and usually have been in distress for some time! Why do people/businesses/companies get into financial difficulties to start with?
An article (here) by Robert Craven (The Director's Centre) very clearly spells out why businesses get into difficulties: bad management... There are occasions when an unexpected outside factor (such as the failure of a critical customer or supplier) can knock a business for six, but even those situations can largely be anticipated by forward planning and keeping an eye on matters. I spend approximately 40% of my time managing my own practice, quite apart from doing the work and marketing/development etc. A lot of directors spend much less than that and very often with small businesses it can be less than 10% of "the management's" time...complete folly!
I like Mr Craven: he's very direct in his opinions and advice, very much like me! I tell it as it is, rather than how a client might want it to be. Some of his ideas I don't subscribe to, but by and large what he says makes sense and can be applied generally across the board for any size of company.
As an Insolvency Practitioner, I'm not just here to advise when things go bad. Very often a regular (even once a year) review of a business by me, looking at it from a potentially insolvent point of view, can give an independent view on how the business actually is, rather than how directors perceive it to be. Playing Devil's Advocate can often turn up surprising results and allow directors to plan ahead and deal with problems before they become critical.
Go on, you know you sometimes need help - don't be afraid to ask for it...!
An article (here) by Robert Craven (The Director's Centre) very clearly spells out why businesses get into difficulties: bad management... There are occasions when an unexpected outside factor (such as the failure of a critical customer or supplier) can knock a business for six, but even those situations can largely be anticipated by forward planning and keeping an eye on matters. I spend approximately 40% of my time managing my own practice, quite apart from doing the work and marketing/development etc. A lot of directors spend much less than that and very often with small businesses it can be less than 10% of "the management's" time...complete folly!
I like Mr Craven: he's very direct in his opinions and advice, very much like me! I tell it as it is, rather than how a client might want it to be. Some of his ideas I don't subscribe to, but by and large what he says makes sense and can be applied generally across the board for any size of company.
As an Insolvency Practitioner, I'm not just here to advise when things go bad. Very often a regular (even once a year) review of a business by me, looking at it from a potentially insolvent point of view, can give an independent view on how the business actually is, rather than how directors perceive it to be. Playing Devil's Advocate can often turn up surprising results and allow directors to plan ahead and deal with problems before they become critical.
Go on, you know you sometimes need help - don't be afraid to ask for it...!
Tuesday, 24 May 2011
Accountants don't "do" Twitter!
Here's a surprise: accountants don't market through Social Media...here. (Does that mean most of them won't get to see this blog through my Twitter link!!?)
Let's face it, many accountants are superb at their job and are experts in many financial fields. However, marketing generally is something that they are NOT renowned for - which accountant can honestly say that when he (or she) grew up they wanted to be an accountant and a marketing expert!!
Social media is great for promoting certain types of business, particularly if you're looking at a business model that is based on quantity ratehr than quality (i.e. a large number of clients paying small fees, ratehr than a small number of clients paying large fees - it would be great to always have large numbers of clients paying large fees, but that particular Utopia is not generally achievable by mere mortals!) However, where you are concentrating on quality over quantity, social media (in my opinion) just does not work. The "traditional" marketing techniques of word-of-mouth and referral are still very powerful.
Take my business for example: name me anyone who has experienced financial difficulties who contacted an insolvency practitioner through social media for advice! Just doesn't happen! What does happen is that the speak to their own advisor (e.g. accountant, solicitor, IFA or even perhaps the bank manager) who will probably know and trust an IP and will refer them to that IP for sensible advice. I can confidently say that 95%+ of my own clients come from referrals.
This way (by referral) at least the client will know they're meeting with someone who will give them proper, sensible advice rather than hoping they'll get it from someone they first "met" on Twitter!!
Let's face it, many accountants are superb at their job and are experts in many financial fields. However, marketing generally is something that they are NOT renowned for - which accountant can honestly say that when he (or she) grew up they wanted to be an accountant and a marketing expert!!
Social media is great for promoting certain types of business, particularly if you're looking at a business model that is based on quantity ratehr than quality (i.e. a large number of clients paying small fees, ratehr than a small number of clients paying large fees - it would be great to always have large numbers of clients paying large fees, but that particular Utopia is not generally achievable by mere mortals!) However, where you are concentrating on quality over quantity, social media (in my opinion) just does not work. The "traditional" marketing techniques of word-of-mouth and referral are still very powerful.
Take my business for example: name me anyone who has experienced financial difficulties who contacted an insolvency practitioner through social media for advice! Just doesn't happen! What does happen is that the speak to their own advisor (e.g. accountant, solicitor, IFA or even perhaps the bank manager) who will probably know and trust an IP and will refer them to that IP for sensible advice. I can confidently say that 95%+ of my own clients come from referrals.
This way (by referral) at least the client will know they're meeting with someone who will give them proper, sensible advice rather than hoping they'll get it from someone they first "met" on Twitter!!
Reduction in personal insolvencies hits IVA firm
I blogged earlier this month (here) about the 2011 Q1 insolvency statistics which included a comment on personal insolvencies and that fact that these had decreased.
Unfortunately this has had a knock-on effect on a volume IVA provider, as detailed in Accountancy Age (here). Whilst I am sure the IVA provider will factor in the reduction now and in the future, it is a sure sign that such volume IVA providers will struggle in the future.
I have to say I am not a fan of volume IVA providers as they tend to "commoditise" a complex formal insolvency procedure and apply almost a "one size fits all" approach to a procedure that is meant to be bespoke for a debtor's circumstances. Don't get me wrong there are some extremely competent and reputable volume IVA providers out there. However, I have seen many instances over the last few years where debtors have been persuaded to enter an IVA when such a procedure was completely the wrong thing for them.
IVA's do work, particularly if they are well written. I do suspect, however, that we will see a further fall in the number of IVA's in favour of Debt Relief Orders in the near to medium future. This may mean more volume IVA providers struggling due to lack of income (i.e. lack of new cases) and hopefully this will not lead to an increasing desparation on the part of the volume IVA provider to persuade even more people into an inappropriate IVA.
Always make sure you get sensible advice, consider all the alternative options (not just an IVA) and above all make sure you undertsand what you are committed to with an IVA. If necessary, get a second opinion from an independent Insolvency Practitioner who will be more than happy to help.
Unfortunately this has had a knock-on effect on a volume IVA provider, as detailed in Accountancy Age (here). Whilst I am sure the IVA provider will factor in the reduction now and in the future, it is a sure sign that such volume IVA providers will struggle in the future.
I have to say I am not a fan of volume IVA providers as they tend to "commoditise" a complex formal insolvency procedure and apply almost a "one size fits all" approach to a procedure that is meant to be bespoke for a debtor's circumstances. Don't get me wrong there are some extremely competent and reputable volume IVA providers out there. However, I have seen many instances over the last few years where debtors have been persuaded to enter an IVA when such a procedure was completely the wrong thing for them.
IVA's do work, particularly if they are well written. I do suspect, however, that we will see a further fall in the number of IVA's in favour of Debt Relief Orders in the near to medium future. This may mean more volume IVA providers struggling due to lack of income (i.e. lack of new cases) and hopefully this will not lead to an increasing desparation on the part of the volume IVA provider to persuade even more people into an inappropriate IVA.
Always make sure you get sensible advice, consider all the alternative options (not just an IVA) and above all make sure you undertsand what you are committed to with an IVA. If necessary, get a second opinion from an independent Insolvency Practitioner who will be more than happy to help.
Monday, 9 May 2011
2011 Q1 - Insolvency Statistics
The Insolvency Statistics for the first quarter of 2011 (to 31 March 2011) were released by the Insolvency Service on 6 May 2011. The press release can be found on our website here or alternatively, the full details can be found here.
The most common form of corporate insolvency is liquidation - either compulsory through the Court or voluntary through the directors/shareholders. Overall, liquidations are up by 3.7% on 2010 Q4 and by 2.1% on 2010 Q1. Not surprising given that this is what you would expect to happen when an economy starts to come out of a recession. Total liquidations for 2011 Q1 are 4,121 (2010 Q1: 4,036).
What you don't see is that there was a reduction of 17% for complusory liqudations compared to 2010 Q1 and an increase of 11% for voluntary liquidations compared to 2010 Q1. The numbers are greater for voluntary liquidations hence the overall increase. In my view, there's a simple explanation for this - most compulsory liquidations are as a result of winding-up petitions presented by HMRC. With the continuing Time To Pay ("TTP") scheme, even though it's getting harder to agree a TTP, there has been a general decline in such petitions.
On a practical basis this means that more directors are putting their companies into voluntary liquidation, rather than waiting for a creditor (such as HMRC) to do it through the Court. It's not clear from the detailed statistics, but it would suggest to me that with HMRC tightening up on TTP schemes, the increase in voluntary liquidations may well be as a result of this.
Based on the first quarter's figures, liquidations overall in 2011 may well reach 16,500 companies. This compares with the total for 2010 of 16,045, a potential increase for 2011 of nearly 3%. (The highest recorded in the last 10 years was 2009: 19,077 and the lowest was 2003: 12,184.)
On administrations (the formal insolvency process that may sometimes give rise to the infamous "pre-pack"!), these remain almost exactly the same comparing 2010 Q1 (783 admins) and 2011 Q1 (782 admins). However 2010 Q4 to 2011 Q1 shows an increase of 22% (140 additional companies). Not really surprising given the dreadful weather over Winter 2010 and the lack of retail spending over Christmas 2010. Hopefully that's a seasonal blip...
On individual insolvencies, this looks better: there has been an overall reduction of 15% comparing 2011 Q1 with 2010 Q1. This still equates to 30,162 individual insolvencies in the first 3 months of 2011. This includes bankruptcies (-31%), Individual Voluntary Arrangements (-8%) and Debt Relief Orders (+20%). The increase of 20% in DRO's is nothing to worry about as these are just "non-asset, low debt" bankruptcies in another form. We're still looking at reduction to potentially 120,600 individual insolvencies in 2011 compared to 135,045 in 2010.
However, I suspect that the fallout from the spending cuts hasn't worked its way through yet. Job cuts inevitably lead to finacial difficulties for individuals but those difficulties may not result in a formal insolvency until 12 months or more after the fact. I further suspect that 2011 will be less than 2010 for individual insolvencies, but 2012 will see an increase, possibly with a higher total than 2010.
You can obviously interpret statistics in all sorts of ways! My overall impression however is that corporate insolvencies are up slightly and individual insolvencies are down slightly compared to last year. However, the upward corporate trend from 2010 Q4 is quite high (3.7% liuqidations and 22% administrations) so it will bear watching for the next statitics, due out in early August 2011.
The most common form of corporate insolvency is liquidation - either compulsory through the Court or voluntary through the directors/shareholders. Overall, liquidations are up by 3.7% on 2010 Q4 and by 2.1% on 2010 Q1. Not surprising given that this is what you would expect to happen when an economy starts to come out of a recession. Total liquidations for 2011 Q1 are 4,121 (2010 Q1: 4,036).
What you don't see is that there was a reduction of 17% for complusory liqudations compared to 2010 Q1 and an increase of 11% for voluntary liquidations compared to 2010 Q1. The numbers are greater for voluntary liquidations hence the overall increase. In my view, there's a simple explanation for this - most compulsory liquidations are as a result of winding-up petitions presented by HMRC. With the continuing Time To Pay ("TTP") scheme, even though it's getting harder to agree a TTP, there has been a general decline in such petitions.
On a practical basis this means that more directors are putting their companies into voluntary liquidation, rather than waiting for a creditor (such as HMRC) to do it through the Court. It's not clear from the detailed statistics, but it would suggest to me that with HMRC tightening up on TTP schemes, the increase in voluntary liquidations may well be as a result of this.
Based on the first quarter's figures, liquidations overall in 2011 may well reach 16,500 companies. This compares with the total for 2010 of 16,045, a potential increase for 2011 of nearly 3%. (The highest recorded in the last 10 years was 2009: 19,077 and the lowest was 2003: 12,184.)
On administrations (the formal insolvency process that may sometimes give rise to the infamous "pre-pack"!), these remain almost exactly the same comparing 2010 Q1 (783 admins) and 2011 Q1 (782 admins). However 2010 Q4 to 2011 Q1 shows an increase of 22% (140 additional companies). Not really surprising given the dreadful weather over Winter 2010 and the lack of retail spending over Christmas 2010. Hopefully that's a seasonal blip...
On individual insolvencies, this looks better: there has been an overall reduction of 15% comparing 2011 Q1 with 2010 Q1. This still equates to 30,162 individual insolvencies in the first 3 months of 2011. This includes bankruptcies (-31%), Individual Voluntary Arrangements (-8%) and Debt Relief Orders (+20%). The increase of 20% in DRO's is nothing to worry about as these are just "non-asset, low debt" bankruptcies in another form. We're still looking at reduction to potentially 120,600 individual insolvencies in 2011 compared to 135,045 in 2010.
However, I suspect that the fallout from the spending cuts hasn't worked its way through yet. Job cuts inevitably lead to finacial difficulties for individuals but those difficulties may not result in a formal insolvency until 12 months or more after the fact. I further suspect that 2011 will be less than 2010 for individual insolvencies, but 2012 will see an increase, possibly with a higher total than 2010.
You can obviously interpret statistics in all sorts of ways! My overall impression however is that corporate insolvencies are up slightly and individual insolvencies are down slightly compared to last year. However, the upward corporate trend from 2010 Q4 is quite high (3.7% liuqidations and 22% administrations) so it will bear watching for the next statitics, due out in early August 2011.
Friday, 6 May 2011
HMRC v FA - Round 1
One of my favourite subjects - the Football Creditors' Rule! The FCR allegedly allows the FA and any other football creditor to have a "super-priority" to be paid in front of every other creditor when a football club becomes insolvent. There is no provision for this in the Insolvency Act 1986.
A date has finally been set (see here) for 28 November 2011 the High Court to consider whether or not the FCR should be allowed to stand or if the FA should be relegated (sorry!) to unsecured status as a creditor like everyone else. If you've read my previous blogs (hint) you know that I happen to agree with HMRC on this one.
November will be very interesting...
A date has finally been set (see here) for 28 November 2011 the High Court to consider whether or not the FCR should be allowed to stand or if the FA should be relegated (sorry!) to unsecured status as a creditor like everyone else. If you've read my previous blogs (hint) you know that I happen to agree with HMRC on this one.
November will be very interesting...
Thursday, 5 May 2011
Cashflow problems - can't pay, Sir!
Hmmm...a recent ruling in a Tax Tribunal may open the floodgates to more companies seeking to get away with delayed payments to HMRC without having to go through a Time To Pay ("TTP") scheme.
I have to stress that each case is considered on it merits by a Tribunal, but with HMRC getting tougher on granting TTP's, I can see this trend getting bigger. However, the Tribunal needs to decide if the delayed payments were due to a "reasonable" excuse - a very subjective test indeed. You will need to be sure your reason is reasonable before even thinking about this one!
Otherwise you'll definitely need the advice of an Insolvency Practitioner!
I have to stress that each case is considered on it merits by a Tribunal, but with HMRC getting tougher on granting TTP's, I can see this trend getting bigger. However, the Tribunal needs to decide if the delayed payments were due to a "reasonable" excuse - a very subjective test indeed. You will need to be sure your reason is reasonable before even thinking about this one!
Otherwise you'll definitely need the advice of an Insolvency Practitioner!
Wednesday, 4 May 2011
HMRC - waking the sleeping bear...
I blogged back in November 2010 (here) that HMRC was getting tougher on Time To Pay ("TTP") schemes. An article in Accountancy Age (here) has now backed this up. The article also states that some 75% of companies are now blaming HMRC for their insolvency.
I'm, sorry, but COME ON!! Tax liabilities are exactly the same as trade liabilities - they are a debt that needs to be paid. HMRC is not a bank and doesn't make loans that can be repaid over time: the tax legislation specifically sets out what has to be paid and when. Whilst I have little sympathy for HMRC in that it has abysmally failed in recent years to chase its own (tax due) debts, I also have little sympathy for companies who do not provide suffucient cash to pay their tax liabilities as they are legally obliged to and "blame" HMRC for their insolvency troubles.
When times are tough, HMRC has traditionally been given the lowest priority for paying a debt ("it's the Govrnment, they can afford for me not to pay them"). However, following the banking crises and the current recession etc, the Government can't afford for you not to pay them. They are simply now acting as any other trade creditor has and are exercising decent credit control by trying to collect in their debts! I'm not pro-HMRC, but only a little common sense needs to be apllied to understand what they are doing...
HMRC is generally not unreasonable if you are having difficulty paying a tax debt, just like any other trade creditor, and will still listen to proposals for reasonable TTP schemes. However, you can only expect to get one chance to agree and stick to a TTP scheme. If you go back for another bite of the cherry, don't be surprised if you get refused. If you don't pay the tax due, HMRC cannot withold supplies from you as a trade creditor might be able to unless you pay them, as its debt arises from the activities of a business (e.g. PAYE, NIC, Corporation Tax etc) and can only be collected after the fact. Their only real remedy for absolute non-payment is formal insolvency proceedings and issuing a petition for a winding-up order against the debtor company.
HMRC is like the sleeping bear - it takes a lot to wake it up but once it's awake there's not a lot you can do to stop it from chasing you! Before the bear is awake, take advice from your accountant, or better still an Insolvency Practitioner, and wake the bear gently with a pot of honey (i.e. how you're going to pay the tax) to soften its temper! Better still, make provision for paying the tax and don't wake it up at all!!
I'm, sorry, but COME ON!! Tax liabilities are exactly the same as trade liabilities - they are a debt that needs to be paid. HMRC is not a bank and doesn't make loans that can be repaid over time: the tax legislation specifically sets out what has to be paid and when. Whilst I have little sympathy for HMRC in that it has abysmally failed in recent years to chase its own (tax due) debts, I also have little sympathy for companies who do not provide suffucient cash to pay their tax liabilities as they are legally obliged to and "blame" HMRC for their insolvency troubles.
When times are tough, HMRC has traditionally been given the lowest priority for paying a debt ("it's the Govrnment, they can afford for me not to pay them"). However, following the banking crises and the current recession etc, the Government can't afford for you not to pay them. They are simply now acting as any other trade creditor has and are exercising decent credit control by trying to collect in their debts! I'm not pro-HMRC, but only a little common sense needs to be apllied to understand what they are doing...
HMRC is generally not unreasonable if you are having difficulty paying a tax debt, just like any other trade creditor, and will still listen to proposals for reasonable TTP schemes. However, you can only expect to get one chance to agree and stick to a TTP scheme. If you go back for another bite of the cherry, don't be surprised if you get refused. If you don't pay the tax due, HMRC cannot withold supplies from you as a trade creditor might be able to unless you pay them, as its debt arises from the activities of a business (e.g. PAYE, NIC, Corporation Tax etc) and can only be collected after the fact. Their only real remedy for absolute non-payment is formal insolvency proceedings and issuing a petition for a winding-up order against the debtor company.
HMRC is like the sleeping bear - it takes a lot to wake it up but once it's awake there's not a lot you can do to stop it from chasing you! Before the bear is awake, take advice from your accountant, or better still an Insolvency Practitioner, and wake the bear gently with a pot of honey (i.e. how you're going to pay the tax) to soften its temper! Better still, make provision for paying the tax and don't wake it up at all!!
Wednesday, 27 April 2011
Company Insolvency Risk Increases
I haven't blogged for a while - the simple reason for this is I've been REALLY busy! Every silver lining has a cloud so whilst it's good for me as an Insolvency Practitioner, it's not so good for others.
A recent article in Accountancy Age (here) backs up the increase in work I've been seeing. The statistics for insolvencies for Q1 2011 will be published around 6 May 2011 - they will make interesting reading. I have no doubt they will follow the typical pattern of the UK economy coming out of a recession in terms of an increase in failures.
I've been doing a lot of advice and more informal (non-Insolvency Act 1986) work for companies that are buckling but not yet on their knees. One of the useful services we offer is carrying out a snapshot review of a company to see what insolvency risks there are. At ipd this is called a "Financial and Options Review" and more details on this can be found here. A typical review will take 2-3 days and the results are available in a very short time so that problems can be sorted quickly.
Essentially the review gives an independent view of the financial state and health of a company, which can often differ from the view held by the directors - it's a very useful tool to give them a better perspective on what is actually happening and allows them to see what the problems are that need addressing. Very often a director will not recognise that there is a problem already or one that may be looming in the very near future and therefore hasn't taken steps to deal with it. It will also provide them with advice on the risks of potential personal liability if the company is insolvent.
The review is also very useful for any company that is experiencing difficulties with its funding requirements, e.g. in terms of maintaining an overdraft facility or wanting an increase. On the basis that the review shows that the company is actually in reasonable or good financial health, the fact that an Insolvency Practitioner (cynical creatures that we can be!) has looked at it and given it a clean bill of health can be reassuring for a Bank or other lender in terms of continued or additional support for the company.
Whilst 90% of the time an Insolvency Practitioner will only be called in at two minutes to midnight, asking him to visit at 11.30pm will often yield surprising results! We don't bite really!!
A recent article in Accountancy Age (here) backs up the increase in work I've been seeing. The statistics for insolvencies for Q1 2011 will be published around 6 May 2011 - they will make interesting reading. I have no doubt they will follow the typical pattern of the UK economy coming out of a recession in terms of an increase in failures.
I've been doing a lot of advice and more informal (non-Insolvency Act 1986) work for companies that are buckling but not yet on their knees. One of the useful services we offer is carrying out a snapshot review of a company to see what insolvency risks there are. At ipd this is called a "Financial and Options Review" and more details on this can be found here. A typical review will take 2-3 days and the results are available in a very short time so that problems can be sorted quickly.
Essentially the review gives an independent view of the financial state and health of a company, which can often differ from the view held by the directors - it's a very useful tool to give them a better perspective on what is actually happening and allows them to see what the problems are that need addressing. Very often a director will not recognise that there is a problem already or one that may be looming in the very near future and therefore hasn't taken steps to deal with it. It will also provide them with advice on the risks of potential personal liability if the company is insolvent.
The review is also very useful for any company that is experiencing difficulties with its funding requirements, e.g. in terms of maintaining an overdraft facility or wanting an increase. On the basis that the review shows that the company is actually in reasonable or good financial health, the fact that an Insolvency Practitioner (cynical creatures that we can be!) has looked at it and given it a clean bill of health can be reassuring for a Bank or other lender in terms of continued or additional support for the company.
Whilst 90% of the time an Insolvency Practitioner will only be called in at two minutes to midnight, asking him to visit at 11.30pm will often yield surprising results! We don't bite really!!
Wednesday, 16 February 2011
Monday, 14 February 2011
Football Creditor Rule - Red Card?
I'm certainly not anti-football (in fact I'm an avid Stoke City fan - no comments please!)
However, HMRC is challenging the controversial "football creditors rule" where the Football Association insists that all football creditors must be paid in full (managers, players, clubs etc) before any other creditor if a football club goes into administration/CVA etc. This effectively means that the FA becomes a super-preferential creditor. See article here. I don't always agree with HMRC but in my view it is right to tackle (sorry!) a situation that is clearly against the provisions of the Insolvency Act 1986.
I'm all for any measure that helps rescue a business, including a football club, but everyone has to be on a level playing field (sorry again!) for it to be fair play (ouch!) for all!!
(I'll try and moderate the football puns in any subsequent blogs!)
However, HMRC is challenging the controversial "football creditors rule" where the Football Association insists that all football creditors must be paid in full (managers, players, clubs etc) before any other creditor if a football club goes into administration/CVA etc. This effectively means that the FA becomes a super-preferential creditor. See article here. I don't always agree with HMRC but in my view it is right to tackle (sorry!) a situation that is clearly against the provisions of the Insolvency Act 1986.
I'm all for any measure that helps rescue a business, including a football club, but everyone has to be on a level playing field (sorry again!) for it to be fair play (ouch!) for all!!
(I'll try and moderate the football puns in any subsequent blogs!)
Monday, 7 February 2011
50 year Personal Insolvency High
It's official...
Statistics released by the Insolvency Service on 4 February 2011 (here) show personal insolvencies (a combination of Bankruptcies, Individual Voluntary Arrangements and Debt Relief Orders) to be the highest in any one year since records began in 1960 - 2010 saw personal insolvencies top 135,000.
This does not of course include individuals who are simply struggling to cope with credit burdens whilst trying to do so on their own, or indeed people who are in Debt Management Plans. As a conservative estimate, you can probably multiply the insolvency figure by a factor of 10 to get a rough idea of the number of these classes of debtors.
I can only (with a certain amount of trepidation) predict that these numbers will increase during 2011. It is somewhat inevitable given the Government Spending cuts resulting in job losses, potentially raging inflation and the VAT increase making everything that little bit more expensive for Joe Public. A large proportion of Joe Public is already struggling just to pay the mortgage and put food on the table.
As an Insolvency Practitioner dealing with corporate insolvencies (as well as individuals) I have seen an increase in directors seeking advice from me as to how to deal with financial difficulties relating to their businesses. An increasingly larger proportion of that advice (compared to 2010) is sadly now resulting in those companies entering a formal insolvency procedure (such as liquidation or administration) where it is unlikely that jobs can be saved. As well as job losses directly attributable to the spending cuts, private companies are also shedding jobs in one form or another.
I think the Coalition's hope that private industry will at least replace the jobs lost through the Government's spending cuts is looking increasingly unrealistic, at least for 2011. This can only lead to more fiancial difficulties at a personal level.
Once again, I would urge both directors and individuals to seek professional advice on dealing with their financial difficulties as early as possible. And by this I don't mean calling the freephone number of a debt advisor you may see in the newspaper. Whilst some of these are reputable, the old adage of "you get what you pay for" still holds true!!
Statistics released by the Insolvency Service on 4 February 2011 (here) show personal insolvencies (a combination of Bankruptcies, Individual Voluntary Arrangements and Debt Relief Orders) to be the highest in any one year since records began in 1960 - 2010 saw personal insolvencies top 135,000.
This does not of course include individuals who are simply struggling to cope with credit burdens whilst trying to do so on their own, or indeed people who are in Debt Management Plans. As a conservative estimate, you can probably multiply the insolvency figure by a factor of 10 to get a rough idea of the number of these classes of debtors.
I can only (with a certain amount of trepidation) predict that these numbers will increase during 2011. It is somewhat inevitable given the Government Spending cuts resulting in job losses, potentially raging inflation and the VAT increase making everything that little bit more expensive for Joe Public. A large proportion of Joe Public is already struggling just to pay the mortgage and put food on the table.
As an Insolvency Practitioner dealing with corporate insolvencies (as well as individuals) I have seen an increase in directors seeking advice from me as to how to deal with financial difficulties relating to their businesses. An increasingly larger proportion of that advice (compared to 2010) is sadly now resulting in those companies entering a formal insolvency procedure (such as liquidation or administration) where it is unlikely that jobs can be saved. As well as job losses directly attributable to the spending cuts, private companies are also shedding jobs in one form or another.
I think the Coalition's hope that private industry will at least replace the jobs lost through the Government's spending cuts is looking increasingly unrealistic, at least for 2011. This can only lead to more fiancial difficulties at a personal level.
Once again, I would urge both directors and individuals to seek professional advice on dealing with their financial difficulties as early as possible. And by this I don't mean calling the freephone number of a debt advisor you may see in the newspaper. Whilst some of these are reputable, the old adage of "you get what you pay for" still holds true!!
Friday, 14 January 2011
Insolvency Service Madness!
An article in today's Accountancy Age has revealed that the Insolvency Service (which is the Government department that deals with individual bankruptcies and the liquidation of companies through the Courts) is shedding some 440 jobs from its Offical Receivers Offices around the UK.
This equates to a reduction of something like 14% of the OR's offices' staff. The reason being given is that the number of personal and corporate insolvencies being dealt with by the OR's offices is falling. However, the Insolvency Service's own statistics for Q3 2010 (the latest available) show total personal insolvencies have only reduced by 3.7% compared to Q3 2009.
Admittedly, the number of bankruptcies have actually fallen by 24% but the number of Debt Relief Orders have risen by 57%. DRO's still need to be dealt with by the OR's offices. With the Government's own spending cuts yet to take affect and the prospect of 500,000 public sector job cuts happening, this really seems short-sighted to me to be reducing the OR's staff levels at this stage. I suspect that the number of bankruptcies will increase during 2011/12 as many public sector workers will not be eligible for the simpler DRO process and will need to enter bankruptcy instead.
(If you need more information on Debt Relief Orders see our website under Useful Stuff/Insolvency Technical Briefs)
This equates to a reduction of something like 14% of the OR's offices' staff. The reason being given is that the number of personal and corporate insolvencies being dealt with by the OR's offices is falling. However, the Insolvency Service's own statistics for Q3 2010 (the latest available) show total personal insolvencies have only reduced by 3.7% compared to Q3 2009.
Admittedly, the number of bankruptcies have actually fallen by 24% but the number of Debt Relief Orders have risen by 57%. DRO's still need to be dealt with by the OR's offices. With the Government's own spending cuts yet to take affect and the prospect of 500,000 public sector job cuts happening, this really seems short-sighted to me to be reducing the OR's staff levels at this stage. I suspect that the number of bankruptcies will increase during 2011/12 as many public sector workers will not be eligible for the simpler DRO process and will need to enter bankruptcy instead.
(If you need more information on Debt Relief Orders see our website under Useful Stuff/Insolvency Technical Briefs)
Professions Bad with Money!
A recent article in Accountancy Age shows that even the most qualified of professionals can get into financial trouble.
I have to say that my experience over the years has shown that whilst most "professionals" (e.g. accountants, solicitors, architects etc) manage their personal and business finances exceptionally well, when it goes wrong, it goes wrong in spectactular style!!
I think this is mainly down to the fact that these types of individuals are usually high earners and therefore also have a high level of financial outgoings. When the income drops (sometimes even if it is only slightly) then the high level of outgoings creates fiancial problems in a very short space of time.
"Accountant, heal thyself" is a very rare phrase to hear as you would think that this type of individual would be able to deal with 'the numbers' very well. However, many accountants (but by no means all of them) are so number-focussed that practical and commercial acumen doesn't always come into play. Same with solicitors and architects: they get so caught up in doing the job for their client (no bad thing) that they lose sight of the commercial reality. Whilst the client will get a gold standard service, it may only be able to pay coppers.
Having advised an accountantcy practice, a law practice and an architects practice on insolvency matters in the last 12 months, all of these things have rung true.
However, don't be afraid of seeking advice from your accountant, lawyer etc - they will undoubtedly be able to help you. All I will say to the professional is that they need to ensure they run their practice as a business just as much as anyone else who runs a business. If you do start to experience financial difficulties, seek help from an insolvency practitioner sooner rather than later
I have to say that my experience over the years has shown that whilst most "professionals" (e.g. accountants, solicitors, architects etc) manage their personal and business finances exceptionally well, when it goes wrong, it goes wrong in spectactular style!!
I think this is mainly down to the fact that these types of individuals are usually high earners and therefore also have a high level of financial outgoings. When the income drops (sometimes even if it is only slightly) then the high level of outgoings creates fiancial problems in a very short space of time.
"Accountant, heal thyself" is a very rare phrase to hear as you would think that this type of individual would be able to deal with 'the numbers' very well. However, many accountants (but by no means all of them) are so number-focussed that practical and commercial acumen doesn't always come into play. Same with solicitors and architects: they get so caught up in doing the job for their client (no bad thing) that they lose sight of the commercial reality. Whilst the client will get a gold standard service, it may only be able to pay coppers.
Having advised an accountantcy practice, a law practice and an architects practice on insolvency matters in the last 12 months, all of these things have rung true.
However, don't be afraid of seeking advice from your accountant, lawyer etc - they will undoubtedly be able to help you. All I will say to the professional is that they need to ensure they run their practice as a business just as much as anyone else who runs a business. If you do start to experience financial difficulties, seek help from an insolvency practitioner sooner rather than later
Tuesday, 11 January 2011
Community Radio - Insolvency Matters!
I had a great broadcast slot today with 6Towns Radio - a local community internet radio station for Stoke on Trent and North Staffordshire, courtesy of my good friend Nigel Howle from Howle Communications. Nigel can also be contacted on www.Twitter.com/howlecom.
Nigel asked me to do a slot on insolvency matters generally and in particular on HMRC's Business Payment Support Service (otherwise known as the Time to Pay "TTP" scheme). I won't go into it in any detail as my previous blogs have already covered these two areas, but I did follow Shaun Cloyne from HMRC Stoke on Trent who was talking about tax matters and he gave me a perfect follow-on to start talking about insolvency and being unable to pay taxes!!
Community radio performs a great function as it concentrates on local issues - something I'm very keen on. The station itself was started with a small grant but the majority of funding comes from a local businessman - all contributions are therefore wlecome! Contact the station directly.
Nigel asked me to do a slot on insolvency matters generally and in particular on HMRC's Business Payment Support Service (otherwise known as the Time to Pay "TTP" scheme). I won't go into it in any detail as my previous blogs have already covered these two areas, but I did follow Shaun Cloyne from HMRC Stoke on Trent who was talking about tax matters and he gave me a perfect follow-on to start talking about insolvency and being unable to pay taxes!!
Community radio performs a great function as it concentrates on local issues - something I'm very keen on. The station itself was started with a small grant but the majority of funding comes from a local businessman - all contributions are therefore wlecome! Contact the station directly.
Wednesday, 5 January 2011
Mixed Messages for 2011
I haven't blogged for a while, simply because I've been pretty busy the last few months on the run up to Christmas 2010. But, New Year, new determination to inflict my views on the world again!
As an Insolvency Practitioner, I'm not always regarded as the life and soul of the party. However, once a business starts running into financial difficulties, an IP can be a godsend. Just as a reminder of what I'm all about, have a look at my website at www.ipd-uk.com.
2011 will be a difficult year for anyone facing financial difficulties. An article in Accountancy Age on 23 December 2010 sums it up nicely. Bank lending to smaller businesses is likely to increase, but not to any great extent and certainly not to levels previously seen prior to the credit crunch in 2008. UK GDP is expected to grow but only in the region of 1-2% over the year. Estimates of 3-4% I feel are wildly optimistic. That the economy is showing (and is expected to continue to show) at least some growth is very encouraging, but with the increase in fuel duties, increase in VAT to 20% and implementation of the Government spending cuts, 2011 is going to be a very tough year on Joe Public's pockets.
The obvious knock-on of this is that retail is likely to suffer. I'm not going to speculate on which it might be, but I have a gut feeling that 2011 will see at least one, maybe two, more big high street retail names dropping off the perch. I hope it won't happen, but...
Regarding us mere mortals, and by this I mean SME's, insolvencies of smaller businesses are VERY likely to increase. This will be down to several factors:
As an Insolvency Practitioner, I'm not always regarded as the life and soul of the party. However, once a business starts running into financial difficulties, an IP can be a godsend. Just as a reminder of what I'm all about, have a look at my website at www.ipd-uk.com.
2011 will be a difficult year for anyone facing financial difficulties. An article in Accountancy Age on 23 December 2010 sums it up nicely. Bank lending to smaller businesses is likely to increase, but not to any great extent and certainly not to levels previously seen prior to the credit crunch in 2008. UK GDP is expected to grow but only in the region of 1-2% over the year. Estimates of 3-4% I feel are wildly optimistic. That the economy is showing (and is expected to continue to show) at least some growth is very encouraging, but with the increase in fuel duties, increase in VAT to 20% and implementation of the Government spending cuts, 2011 is going to be a very tough year on Joe Public's pockets.
The obvious knock-on of this is that retail is likely to suffer. I'm not going to speculate on which it might be, but I have a gut feeling that 2011 will see at least one, maybe two, more big high street retail names dropping off the perch. I hope it won't happen, but...
Regarding us mere mortals, and by this I mean SME's, insolvencies of smaller businesses are VERY likely to increase. This will be down to several factors:
- HMRC is getting tougher on Time To Pay ("TTP") agreements and are agreeing far less of them. The TTP system has, in my view, been abused by those who either actually could pay their tax normally, or hadn't got a hope of ever paying it and a TTP was an easy touch (in the period running up to the election) to use to simply delay the inevitable. This has resulted in those who could have genuinely benefitted from a TTP being denied the chance;
- VAT increase - need I say more;
- As the economy improves, it may become more attractive to close a struggling insolvent business. Over the last 3-4 years, much of the bank lending to small businesses has been done on the usual security bases, but largely also included a personal guarantee from a director, backed up by a charge on his house. Twelve months ago, closing a company with a £50,000 overdraft would have meant the director losing his house to the bank to pay it. Now, with an improving economy, that overdraft may have reduced down to £20,000 which is more affordable to settle without losing the house.
Judging by the number of enquiries I received pre-Christmas 2010 for insolvency advice, this looks increasingly to be the case...
Whilst I am always happy with an increase in my work, my silver lining is always someone else's cloud. Those clouds can either be light fluffy ones that are easily dealt with if they're tackled early or black thunderheads if matters are left to drift too long. IP's don't bite - use their skills!!
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