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
Insolvency is on the increase. It is more or less inevitable that a percentage of your Company's customers will fall victim to the crunch, and whilst good credit management practices can reduce your exposure to customer failure, they are unlikely to allow you to escape it altogether. It is therefore important that your Company has procedures in place to deal with insolvent customers, protect its own interests, and recover whatever it can.
Quite often an insolvency 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 dividends 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.
Bad Times Can Be Good Times To Pick Up A Bargain
The current economic climate offers many opportunities to build and expand a business. A buyer eligible for Government funding or with cash in the bank can find both assets and businesses at bargain prices - and insolvent businesses can be very good value for money.
Again, time is of the essence. If the sale is already in the hands of an insolvency practitioner, for example, then he or she will likely be approaching - or may already have approached - a number of interested parties, so a buyer who has access to funds and is in a position to move quickly will obviously be at a commercial advantage. However, the sale of an insolvency company is not always in the hands of an insolvency practitioner; many insolvent companies are sold by way of pre-pack administration, so that a deal to sell the assets of the failed company is agreed prior to insolvency and completed immediately after the appointment of an Administrator or Receiver.
A word of warning: pre-pack sales are very rapidly executed and the business is never offered on the open market - and that can obviously be very advantageous to the prospective purchaser - but because few or no warranties are likely to be given, the onus is on the buyer to gather as much information as possible. Prospective purchasers of 'pre-packed' businesses must therefore be prepared to carry out an extensive and accelerated due diligence exercise, which means that a due diligence team (financial and tax advisors, lawyers, industry specialists and so on) needs to be appointed as quickly as possible.
Additionally, it is of course important to appreciate that any acquisition process can be complicated and demanding; that the terms of any sales agreement are likely to favour the seller, and that the whole process involves an element of risk in good times or bad. An experienced legal team is therefore an absolute must for any company bent on picking up a bargain - preferably a team drawn from a large firm of Solicitors with an established Corporate Department. The Law Society's website will enable you to find an appropriate firm of Solicitors if you do not have one in place.
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Staying Afloat
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 earlier are only 'bargains' because directors and/or managelent 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.
Restructuring
Ar 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.
