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Archive for the ‘Corporate Insolvencies’ Category

Company liquidation rate in England & Wales lowest since records began in 1984

Sunday, November 27th, 2016

Insolvency Office statistics reveal that the company liquidation rate in England and Wales is at its lowest level since records began in 1984. There has been a continuous downward trend in the rate since 2011.

In the 12 months to the end of September 2016, 0.41 per cent of active companies (about one in 244) went into liquidation. At the same point last year 0.46 per cent of companies (one in 215) had collapsed into liquidation in the previous 12 months.

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A guide to buying assets from insolvent companies

Thursday, September 29th, 2016
Unfortunately, there will always be companies that fail to succeed and are closed down. The assets left behind, like equipment, machinery and property, are left for the licensed insolvency practitioner (IP) or liquidator to sell on to try and make some money back for creditors who are owed money. The profits made from asset sales are then distributed equally to creditors and the case is closed.
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Residential care activities insolvencies up 23 per cent

Thursday, May 5th, 2016

Some interesting analysis on the residential care home market has been carried out by FRP Advisory.

Running against a general cross-industry trend of declining corporate insolvencies, the care home sector has been going through a very rough patch with insolvencies up 23% year on year. We are looking at a staggering 24-fold rise since 2010.

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A hike in court fees could push SMEs into insolvency

Friday, February 27th, 2015

There are concerns that a rise in court fees could lead to a decline in smaller businesses seeking justice and higher insolvency numbers.

A report from the Law Society highlighted the potential issue, saying that court fees could jump by as much as 600 per cent after government-led changes take effect in April this year.

The total value of cases brought to court by SMEs could actually halve as a result, according to information gathered from almost 200 solicitors.

It would become very difficult for businesses to pay the fees involved in challenging unpaid invoices, leaving just one option: insolvency, the Law Society said.

A government announcement in January said the fee for bringing a claim worth more than £10,000 will rise to five per cent of the sum claimed, with a maximum fee of £10,000. And calculations from the civil justice council show that court fees on a claim to the value of £200,000 will increase by £8,725.

“The UK prides itself on its entrepreneurs and start-ups,” says Law Society president Andrew Caplen, “but the government’s 600 per cent hike in court fees could cripple the small and medium-sized businesses that plays a vital role in our economic society.”

“Companies suffering cash flow problems as a result of unpaid invoices simply do not have money in the bank to stump up extortionate court fees,” he added.

So long and farewell: The five biggest names to leave UK high streets since 2013

Friday, November 7th, 2014

It has been a strange six years for the retail industry.

When the economic recession hit and consumers tightened the proverbial purse strings, there were few sectors that felt the pinch quite as much as retail. However, as the economy improves and people begin to splash the cash once again, it still has not been smooth sailing for high street shops, with many succumbing to financial pressures and going out of existence.

The truth is that the industry has changed; it is a well-known fact that people are increasingly going online to buy their goods, making bricks and mortar stores at even greater risk of falling into financial distress. Indeed, the result has been devastating for some retailers, with major UK brands crumbling by the wayside as Britain marches down its road to recovery.

So, with all that being said, here is a look at five of the most high profile retail casualties from the past two years.

Floors-2-Go

The flooring company fell on hard times earlier this year and, for the third time since 2008, administrators were called in to try and find a buyer for the business. The family-owned firm looked like it might get a reprieve when a deal was touted with the Chinese company Nature Floor, but this never materialised and talks were eventually abandoned over the summer.

Jane Norman

The women’s clothing chain, which is owned by The Edinburgh Woollen Mill Group, is the sister company of another fashion chain Peacocks. It entered administration for the second time on 26 June 2014, having suffered the same fate almost exactly three years earlier (on 27 June 2011).

Despite closing stores and streamlining its operations, Jane Norman could not make the numbers add up and its parent company decided the time had come to close the fashion house down. It still trades online but has no high street presence.

Phones 4U

The mobile phone seller came unstuck in quite different circumstances to the first two retailers on the list; it was not the loss of sales to online competitors that did it for Phones 4U, it was the fact that it lost big contracts with two major operators.

Earlier this year the firm failed to renegotiate deals with EE and Vodafone – but both telecoms businesses were quick to capitalise when, having entered administration, they snapped up some of Phones 4U’s high street shops.

Blockbuster

Cheap DVDs, online sales, downloads, streaming… you didn’t need to own a crystal ball to know that Blockbuster’s days were numbered. It remains a golden example of businesses’ need to respond to market demands and adapt to the times – as the company failed to evolve apace with the trend of buying and watching films online its closure quickly became a question of when, not if.

The iconic stores disappeared from British high streets towards the end of 2013 and it is estimated that the collapse cost the taxpayer around £7 million.

La Senza

Finally, completing the list, we have the lingerie business La Senza. Attempts to find a buyer for the fashion retailer failed and it entered administration earlier this year.

The company, which was owned by serial entrepreneur Theo Paphitis, formerly of BBC show Dragons’ Den, still has more than 300 stores around the world but its presence is set to diminish on the UK’s high streets after administrators PwC confirmed they would be closing all remaining British shops.

Liquidations up from 2013, research reveals

Wednesday, April 30th, 2014

The Insolvency Service has released its Q1 figures to reveal how many companies ran into financial trouble in the first three months of the year.

The organisation’s statistics revealed that there was a 53.1 per cent increase in the number of compulsory liquidations in England and Wales during this period compared to the previous quarter. This equates to a total of 1,072 compulsory liquidations between January and March 2014, up from 700 at the end of 2013 and 10.2 per cent higher than the equivalent quarter of last year.

The Insolvency Service, which operates under a statutory framework for dealing with financial failures, also showed that total corporate liquidations rose by 4.9 per cent year-on-year. Meanwhile, Creditor’s Voluntary Liquidations increased by 2.1 per cent in Q1 of 2014 compared to 12 months earlier.

The heavy number of liquidations at the start of the calendar year could be attributed to failures over the Christmas period; as many companies rely heavily on this time to bring in a large proportion of their annual income, should they fail to meet targets over the festive period then they could fall into financial disarray in the months following.

Indeed, the retail sector was the second most prevalent when it came to liquidations, beaten only by the construction industry.

Importantly, however, despite all the above figures seemingly being on the up, the percentage of active companies going into insolvency was down; it dropped from one in 165 in 2013 to one in 167 this year.

Reflecting on the statistics, Giles Frampton, the new president of insolvency trade body R3, said: “Having fallen from their peak during the recession, corporate insolvency numbers have been relatively stable for a while, although they haven’t fallen as far or as fast as they ordinarily do after a peak.

“Economic recovery is very welcome, but extra activity does put added pressure on businesses that might not have the resources or ability to adapt quickly enough. This might have helped push numbers up from last year.”

Late payments the cause of one in five insolvencies

Friday, April 11th, 2014

At the start of last month we wrote a blog that outlined the findings of a new WorldPay report. This stated that small businesses were owed billions of pounds a year as a result of late payments, with the vast majority of this being written off altogether.

The focus then was on how it could create cashflow problems for smaller businesses. Alas, the plot thickens; today the insolvency trade body R3 has revealed that late payments were at the heart of 20 per cent of insolvencies in the last year.

ComRes surveyed R3’s members and found that one in five corporate insolvencies had suffered from late payment for products or services. Furthermore, 47 per cent of corporate insolvency practioners said they had seen at least one occurrence of a late payment being a primary or major factor in a business failure in the past 12 months.

Every cloud has a silver lining, as the old cliché goes, and this is true in this instance; the insolvencies of small business that are unable to stay afloat by treading water long enough until payments are made in turn open the door to cash-rich business buyers to snap them up.

Essentially the point here is that many of these businesses are not failing because their products or services aren’t good enough or profitable, they are failing because they aren’t getting money in return for them. Unsurprisingly, even if you have a great product, giving it away and not getting paid for – at least not in the time frame required – is not a sustainable business model.

There is almost no company that has not had to deal with the ongoing issue of clients or customers not paying their dues promptly. While you ought to account for this as best you can, for the most tight-budgeted and cash-strapped of UK businesses every penny counts, so when a big deal yields no money in the short-term they can be left of pocket and insolvency looms.

For anyone with greater capital to be able to handle potential dry spells between payments, this does make for a great investment opportunity though.

GAME loses landmark cases for insolvency law

Wednesday, February 26th, 2014

A fortnight ago we reported on an upcoming insolvency and property case involving the high street video game retailer GAME. In essence it was a battle between struggling businesses and property companies, and the case’s verdict this week has certainly advantaged the latter with a ruling that will change insolvency law in favour of UK landlords.

The case, which took place in the Court of Appeal this month, was always going to have far-reaching ramifications for businesses in administration and the court’s decision has, unsurprisingly, been met with a flurry of debate.

The case came about when GAME entered administration in March 2012; the result at the time was that the company was forced to close approximately 300 stores and, more importantly, it left £3 million of unpaid rent. In the conclusion to the landmark case on Monday, GAME was ordered to pay the outstanding rent to the consortium of landlords.

GAME had accumulated the rental debt intentionally by taking advantage of a legal loophole that allows a company to avoid paying rent for up to three months if it had appointed administrators soon after the quarterly rent day. It was an insolvency law that had been heavily criticised by landlords for years, with many stating that it enabled or even encouraged faltering retailers to exploit property companies.

A spokesperson from GAME said the verdict “will have a significant financial impact on all landlords, tenants and insolvency practitioners involved in current and future business insolvencies in this country”.

Duncan Grubb, head of credit control at Hammerson, one of the property companies that was almost left out of pocket prior to the ruling stated that it was “a workable, common sense resolution to the payment of rent as an administration expense”.

“This judgement,” he continued, “is beneficial to both landlords and insolvency practitioners, as it removes completely the issue of the rent due date.”

Danny Revitt, partner at the Sheffield office of Irwin Mitchell, added: “The ruling has provided vital clarity to this area, closing the loophole and ensuring landlords are on a surer footing when it comes to administrations.”

Naturally, as these quotes clearly illustrate, this case has divided opinion; while being more ruthless on distressed businesses it does help protect landlords – rent will now be classified as an administration expense, meaning that businesses in administration will have to pay rent on a “pay as you use” basis and won't be able to escape a quarterly payment.

This is almost certainly not the last we’ve heard of this story. GAME has already stated that it is “considering the possibility of an appeal to the Supreme Court” meaning that both the debate and the legal battle itself seem poised to continue for some time yet.

Landmark insolvency decision draws near for GAME

Friday, February 14th, 2014

A landmark insolvency and property case has been underway this week in the Court of Appeal. The result of the Game Station Ltd (Jervis v Pillar Denton Ltd and others) (2013) case is expected to have widespread implications within the insolvency industry and the broader sectors concerned with the administration.

The case was prompted by the administration of gaming retailer GAME in March 2013, which led to the closure of approximately 300 stores and left millions of pounds worth of rent unpaid.

The resolution of the case is expected to lead to a change in the law regarding the labelling of rent as an administration expense. Currently, the law allows administrators to legally trade businesses in administration from their rented premises for as long as three months.

However, the final decision regarding the case could lead to the law giving greater priority to property companies, a decision that would have significant implications for insolvency partners, landlords and creditors.

Alastair Lomax, legal director at Pinsent Masons, believes that the change will have a positive impact on the industry, preventing the profession from encouraging a ‘winner takes all’ attitude during the administration process.

Mr Lomax stressed that the insolvency expenses regime was there to protect third parties, and is not a “tool to be used by any party to gain advantage through the timing of the appointment”.

Changes to the process could have an impact on distressed business buyers, particularly when it comes to the timing of a sale and the burden of debt that could be passed on.

Retail survival rate falling

Tuesday, February 4th, 2014

Recent data from FRP Advisory has suggested that turnaround professionals looking at the retail sector might be in for quite a fight.

The latest retail administration survival index for 2013 found that the retail store survival rate has dropped to 35 per cent. This figure is down from 50 per cent recorded in 2012 and 67 per cent as seen at the end of 2011.

Essentially, the figure means that of all the high street stores entering administration, the insolvency industry managed to rescue 35 per cent, while the others were closed with substantial numbers of jobs lost.

Glyn Mummery, partner with FRP, commented on the figures: “The UK high street has reached a tipping point. The sharp rise in mortality rates for major high street retailers that entered administration last year suggests that the economy will no longer support anyone with a broken model.”

Mummery added that cases like that of Barratts – which has struggled through three administrations in four years – demonstrates that “there are only so many times a broken model can be patched up without a nuts and bolts rebuild”.

The results suggest that the more successful turnaround deals either involve a fundamentally sound business model that has gone temporarily array, perhaps due to access to finance, or require a complete change in approach to a company's way of working.

Retail has become a particularly tricky sector to deal in given the enormous rise in online shopping. However, companies are still making a success in this area, the difference being that they're no longer trying to conform to the conventional retail model and are instead looking to develop their online offerings and customer service approach.