Insolvency can mean a loss or a golden opportunity for your Company - and in many cases need no longer mean the end of the line for troubled businesses - but speedy action is always the key to losing as little a possible, taking advantage of an opportunity, staying afloat, or restructuring a company.
Customer Insolvency - Mitigating Loss
The concensus of informed opinion is that there will be an upsurge in insolvencies in 2011. New technology and good credit management practices can significantly reduce a Company's exposure to customer failure, and many people prefer to believe - despite all the evidence to the contrary! - that if they do all the right things at the right time life will not bring them any unpleasant surprises. Unfortunately, life in the present economic climate is such that unpleasant surprises can fall with a thud on anyone's desk at any time, and never mind how careful they have been to avoid them and how eagle an eye they have kept on their customers. It's therefore wise to have procedures in place to deal with unpleasant surprises, protect your own interests, and recover whatever you can from the debris of customer failure.
It is true that an insolvency often produces nothing for unsecured creditors, but dividends can be substantial - and even if they are very small they are certainly more acceptable than a complete write-off. The key to securing them is timely and appropriate action.
Insolvency of any kind produces a deluge of paperwork - forms, notices, statements, Reports and letters - most of which demand at least a basic knowledge of insolvency and all of which have to be dealt with correctly and quickly. It is very important, for example, that initial paperwork received from an Insolvency Practitioner is processed immediately - particularly if your Company's Terms & Conditions contain a Retention of Title clause entitling it to repossess any unsold goods and it is appropriate for it to do so.
Many credit professionals who have gone through a course of training with the Institute of Credit Management are familiar with insolvency practice, but unless one of your team fits that profile and has the time to deal adequately with the initial and ongoing paperwork involved, outsourcing insolvency work can be more cost-effective than keeping it in-house - particularly as some forms of insolvency can take years to finalise. What if the Company in Trouble is Yours?
Companies get into difficulty for a variety of reasons. Loss of a large customer, margin pressure, late payment from too many customers, or a reduction of bank funding can all make continuing to trade difficult - and the reversal can be very sudden. Getting out of trouble therefore demands that directors and/or management staff see the writing on the wall, be prepared to admit that it is actually there, and seek help from a turnaround specialist at the earliest opportunity. The 'bargains' referred to in the sidebar at right are only 'bargains' because directors and/or management staff failed or refused to recognise the obvious, and either ignored the problem, or tried to trade their way back to financial help without seeking professional advice.
Action taken early enough can sometimes fix the problem - or at least ensure an orderly winding-up that will leave the company and its suppliers and staff with something. A turnaround specialist can estimate how much time is left in which to act, help determine what is critical to the company's survival, identify which fixed and other business costs can be cut, advise on applying for Government funding, and (most importantly!) explain all the available options. For more information, contact The Association of Business Recovery Professionals. The Association has a countrywide network of accredited turnaround specialists.
At present, pre-pack administration is the option of choice for troubled businesses that are unsuitable for turnaround - and in is a particularly useful option for owner-managed businesses, or those where most of the value of the business lies in its key staff or in assets that would amlost certainly lose much of their value under any other insolvency regime because it allows business owners to agree with an insolvency practitioner to put the company into administration, buy back its assets at a discount price, and make a percentage payment to creditors.
'Pre-packs' in this context are controversial. Unsecured creditors are normally only advised of the pre-pack once it has been completed - and, indeed, it can appear to both creditors and shareholders that the pre-pack solution has actually created a 'phoenix' company whereby a failing business has shed its liabilities and become a completely new concern run by the same people. In fact that is not the case. Pre-pack administration is not an easy way to opt out of commercial responsibility; it is a chance to re-build a viable on-going business, provide a better return for secured creditors and - in 92 per cent of cases - save the jobs of all employees. For more information about pre-pack administration, or to find an insolvency practitioner, contact The Insolvency Practitioners Association
What We Can Do to Help
We offer advice and assistance on various aspects of insolvency, including:
customer failure;
retention of title;
preparing and lodging Proof of Debt and other forms;
attending or arranging coverage of Creditors' Meetings
ascertaining dividend prospects, and
ensuring that claims are lodged and accepted and that dividends (if any) are paid.
Our fees are based on a percentage of the dividends recovered. There is a small administration fee for a nil recovery.
