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...!
Thursday, 26 May 2011
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!!
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