Archive for the ‘Businesses in Administration’ Category
March 2016 saw a record number of UK companies file for voluntary liquidation. There were 2663 solvent companies wound up – over three times the usual monthly rate which has averaged at 768 for the twelve months prior. The last highest month recorded was April 2015 when 992 companies filed.
What could this be attributed to?
For most, Christmas Day brings with it joy and cheer but for some retailers, the 25th of December will have bought with it a sense of foreboding as it heralded quarterly rent day.
The past few years have seen a string of retail insolvencies either just before or just after Christmas as businesses have struggled to adjust to the changing market and consumers' growing reliance on online shopping. Zavvi, Jessops and Woolworths are among those to have hit the wall in recent years under the seasonal pressure.
When a company is forced into administration there is a long list of people waiting in line for their payment before things can be fully wound up and laid to rest; it's a stressful set of procedures.
Equally stressful is waiting for products or money from a company that has entered administration. Insolvency practitioners do, however, have to follow strict regulation when it comes to payout, so who gets paid and when will depend on their status in relation to the business.
The process is under regular review by the government and the insolvency industry itself to try and find the fairest way of proceeding but at the moment the procedure for who gets paid first when a company enters administration is as follows…
At the top of the tree are the insolvency practitioners themselves. Administrations are these companies' bread and butter, they will ensure that the sale of the distressed business brings in funds to pass on to everyone else, but understandably, they sort themselves out first.
The one group of people the insolvency practitioners have to put on equal footing with themselves are the secured creditors – official lenders such as banks and asset-based lenders that the business had arrangements and guarantees in place with.
When these two have been sorted, it's on to the preferential creditors, namely employees. Next up, unsecured creditors such as HMRC, customers, suppliers and contractors.
And finally at the bottom of the tree are the shareholders, who will only receive any payment from the insolvency business if all of the above have been paid.
If you would like to capitalise on distressed businesses long before anyone else, then you need to subscribe to the Business Sale Report today, to begin accessing our range of administration alerts for insolvent companies about to fail.
For business buyers, the land of distressed opportunities can be a happy hunting ground, filled with great-value deals and easy-to-acquire assets. But distressed businesses can also attract rival bidders, which is why keeping a close eye on companies served with winding-up petitions can be such a worthwhile exercise.
So what exactly is a winding-up petition?
In short, a winding-up petition, or WUP, is a serious course of action taken against a business that fails to make financial payments to creditors. This can mean that the company has broken any trust the creditor had; its cheques have bounced; or the directors have not kept their word to make payments.
A powerful weapon in a creditor's armoury, a winding-up petition is served when a business, for whatever reason, simply cannot make the payments it needs to. The fact that it can cost anything up to £2,000 just to file a WUP is an indication of the severity of the action – it is usually a last resort when an individual or business needs to get the money they are owed.
Essentially, a WUP is an early indication – before a liquidation or administration take place – that a business has fallen into financial disrepute. Moreover, a winding-up petition is the start of a process which, if ignored, leads to the Compulsory Liquidation of a limited company.
So what is their relevance to business buyers?
As stated at the top, business buyers will often look to distressed businesses as ideal acquisition opportunities because companies that have fallen on hard times usually represent better value to the buyer. But this improved value can often bring with it greater competition. Getting a head start on rival buyers, therefore, is vital if one is to secure an acquisition before others beat them to the punch or enter the fray and drive prices up in a bidding war.
Importantly, once a winding-up petition has been served, the recipient business cannot sell the company or the assets, as this could be reversed by the court. So an immediate acquisition will likely not be possible. However, if one was to use the rather unflattering metaphor of a shark hunting injured prey to describe business buyers seeking out distressed opportunities, then a WUP is the first drop of blood in the water.
Winding-up petitions are not as well reported as administrations, nor are they a guaranteed sign that a business is about to go under, but they are a clear indication that there is trouble brewing. Thus, by monitoring WUPs a buyer can put a target company on their radar long before they will come to the attention of other buyers.
This head start can be crucial – it will give the buyer valuable time to conduct due diligence into the acquisition target, weigh up any assets that would be beneficial to their existing business(es) or establish if they could viably attempt a turnaround of the entire company. Importantly, they can do this before the target enters liquidation or administration, at which point many other buyers will be alerted to the opportunities.
The window of time in question, between a winding-up petition being served and the fate of the company being decided, often in the form of a liquidation or administration, is between six and eight weeks. This gives the buyer time to not only conduct the aforementioned due diligence, but also to speak directly to the sometimes desperate owner of the troubled company and lodge their interest, therefore improving their chances of cementing a deal when the appropriate time arrives.
So, in the competitive merger and acquisition market, where any slight advantage can yield huge benefits, understanding and closely monitoring winding-up petitions can provide the all-important edge a business buyer needs to achieve the sale they're after.
The Business Sale Report tracks all the latest businesses to have winding up petitions lodged against them. Click here to view the latest winding up petitions lodged in the UK.
There were many who lost out financially when HMV toppled into administration back in January 2013, to the tune of millions of pounds. Two years on the retailer’s landlords have struck out at the lack of transparency in the administration process, after it emerged that the administrators and advisers involved pocketed £19 million in fees.
So while HMV’s administrators at Deloitte will be laughing all the way to the bank (though they are likely to see £8 million of the £11.7 million earned), landlords will be handed less than a penny in the pound. Other parties in line to receive a portion of the fees relating to HMV’s collapse include lawyers and commercial property agents.
The situation has led the British Property Federation (BPF), which takes care of the interests of the largest landlords in the UK, to vocalise concerns about the unfairness of current processes. Melanie Leech, chief executive of the BPF, said: “Without a proper system of checks and balances in place it is impossible to know if fees could have been priced more competitively, but at present, the fees charged seem to be entirely unconstrained.”
Creditors should get more information about what their money is being spent on, the costs and the chance to review and approve these costs, she continued.
Vince Cable, the secretary of state for business, is also understood to be worried about increasing charges involved in large company insolvencies.
Ms Leech refers to a ‘claw-back’ practice in the process of restructuring firms, which sees creditors who lose out paid back if the company’s finances return to the black. “We are exploring if the same principle can be applied to administrations,” she said.
There has been a spike in the number of courier and haulier businesses becoming insolvent, impacted by an increase in consumers making purchases online and amid increasing competition.
Insolvency figures for the logistics industry rose by 20 per cent to 221 in 2014, over double the figure for 2010, says accountancy firm Moore Stephens.
Increasing ecommerce activity is pushing logistics companies to keep up with the pace of change. Those with top of the range technology and automated warehouse processes that allow companies to work at high speed are staying at the front of the game, leaving those with more traditional practises far behind in the dust.
City Link was one of those 221 insolvencies last year, buckling on Christmas Eve as a result of tough competition and changing customer demands – both given as factors for the gaping hole in its accounts.
On the other side of the fence UK Mail has ploughed some £20 million in to its business, setting up an automated hub capable of sorting 25,000 parcels an hour in an effort to reduce operating costs and take on some of City Link’s market share.
Speaking to the Financial Times Guy Buswell, UK Mail’s chief executive, acknowledges that it is a “tougher market than it used to be”. And says that from a “financial point of view, losing a player in a crowded market place is probably good for the industry”.
The rate of insolvencies is set to continue rising in 2015, Moore Stephens says, with the shortage of HGV drivers pushing wages up higher.
It was thought the high street might be changed beyond recognition with the ongoing trail of collateral damage seen amongst retailers over the course of the recession threatening to empty the shops.
And in the early days of 2015 Bank Fashion was just the latest to be added to the growing list of companies placed in the hands of administrators.
It seems though that the situation could now be stabilising. In 2014 the number of retailers entering administration fell by 35 per cent. Figures from Deloitte show that there were 119 cases last year, down by one-third from 183 in 2013.
Taking a step back to look at the overall picture, there was a 20 per cent reduction in administration proceedings to 1,302.
With the economy becoming more stable in 2014, consumers have responded by purchasing more confidently, and so improving things for retailers as well.
Lee Manning, restructuring services partner at Deloitte, said: “Although the trend for the sector is positive, there will always be individual retail insolvency cases, as with the clothing chain Bank Fashion.”
The hospitality and leisure industries are hot on the heels of retail with a 34 per cent fall in administrations on 2013. The only sectors to have seen an increase in company failures during 2014 are the financial services at 2.5 per cent and the IT sector at 14 per cent.
It didn’t take long for the wheels to kick into motion following City Link’s slide into administration two weeks ago as today (6 January) the news broke that a buyer has been found for the company.
The parcel delivery business finally ran out of road on Christmas Eve, with union bosses condemning the failure and subsequent 2,000-plus redundancies as an “absolute disgrace”. But no sooner had the dust cleared from its unceremonious collapse than a buyer stepped forward in the form of rival logistics firm DX Group.
DX announced on Tuesday morning that it had bought more than £1 million worth of City Link’s assets including parcel-scanning equipment, cages used to transport parcels within warehouses and “certain intellectual property”.
The value of the assets is well known to the head of DX, Petar Cvetkovic, as he was once City Link’s managing director before leaving to set up the rival business several years ago.
It had been five years since City Link had posted a profit so, while the timing of its demise was unfortunate, leaving many without presents under the Christmas tree, it was not altogether surprising.
Nevertheless, the nature of this deal and the assets that were bought demonstrates that, even when a business has failed, it will still possess things that are of clear value to rival companies. Moreover, these assets are often available at a knockdown price.
That is why businesses in administration are in such demand among business buyers – because they can be dissected; the prime cuts can be taken away from the deteriorating carcass. In this case the factory equipment can have a clear and immediate benefit for DX, enabling the company to expand its operations or save money on machinery it would have had to buy later on.
The undisclosed intellectual property also points to another attractive selling point of distressed businesses. Whether it is bespoke software for a specific sector or a patent on a particular product, IP can add value to a business looking to grow or become more efficient.
Although City Link’s closure was one of the more widely reported administrations of the past 12 months – again because of its ill timing and painful consequences on people’s festive celebrations – the story illustrates the value of monitoring businesses in distress. Many similar collapses will not receive so many column inches, meaning business buyers must look a little harder to remain abreast of such developments.
Waiting for stories to report on the fate of companies often leaves it too late – a better, more proactive approach is to seek out listings of businesses that have failed or are failing. This will not only give potential business buyers a head start over many competitors, ensuring they spot businesses that have fallen into administration first, but it will also allow them to monitor signs of distress, including things like winding-up petitions, which act as the proverbial drops of blood for the sharks in the M&A pool.
If you are interested in identifying potential turnaround opportunities before the competition, then take a look at our latest businesses in administration list which we update daily for our subscribers.
More information on City Link in administration
There are opportunities aplenty for any UK company looking for a retail space as, according to new research, around one fifth of shops that were affected by the administrations of 27 high profile retailers since 2009 are still vacant.
The accountancy firm Deloitte examined the 27 administrations of major brands – including the likes of the HMV, Blockbuster and Comet – and tracked it against the Local Data Company’s data to see how their vacated stores were being used now. The study revealed that in terms of shops that were still vacant, these were most common in retail parks (37 per cent) compared to shopping centres (29 per cent) and the high street (20 per cent).
Hugo Clark, author of the report, said: “The results of this research are surprising and seem to challenge a number of myths around the state of the high street.
“They would suggest that far from being dead, the high street appears to be showing great resilience and a capacity for reinvention. It seems that a structural shift is taking place with the high street emerging as an unexpected winner.”
By region the fates of the vacated building varied; in Greater London only 18 per cent of the shops were still without an occupier whereas in the northwest of England the vacancy rate was much higher at 32 per cent.
While many point to the high street suffering as a result of online shopping, Deloitte’s head of retail Ian Geddes said that the growth of ‘click and collect’ is actually pushing people back into shops.
Nevertheless, the number of vacant shops both on the high street and within retails parks and shopping centres spells good news for UK companies looking for an empty trading premise.