Business Rescue
"It is almost a year ago that I very nearly gave up hope and succumbed to the pressure from the Accountant and Insolvency people to put my business into liquidation. You intervened and now look at us - turnover for the last month our best ever and just expanding into new premises. I've learned a lot since then - that a total stranger can give you a lot more support than your friends and family, and never to let any external advisor become the final authority in your life... Thank you so much Rachel for all your help." (Name of entrepreneur witheld)
If your business is experiencing difficulties perhaps I can help you?
I experienced the nightmare meltdown of my first company Red Letter Days and know exactly what traumas you are facing. At times of business trouble it is essential to have someone that you trust completely and who you can confide in; someone who can help you review your business model and look at ways to instantly improve your cashflow as well as give you access to contacts who will give you the best professional advice appropriate to your size of business, as well as specialists in providing distress finance to companies which are experiencing problems. In other words, to help you build a trusted support team who will work to help you try to SAVE your business - rather than just measure you up for a coffin.
I can provide that confidential mentoring and support service, starting with a face to face meeting and then subsequently three months' mentoring by email/phone, as well as introduce you to trusted experts and specialist turnaround re-financiers appropriate to your situation.
I charge £2500 + VAT for this service, which is invoiced as a consultancy fee.
If you think I can perhaps help you get through your problems, as the first step please email me IN CONFIDENCE at rachel@rachelelnaugh.com. Please be assured that your email will come direct to me and will not be read by any other party.
Rachel
If you’ve read my book Business Nightmares, you’ll know that I appointed top legal firm SGH to act for me in fighting a potential Directors’ Disqualification by DBERR after my company Red Letter Days went into administration – which they successfully defended.
Looking back, I now realise that if I had appointed SGH while Red Letter Days was going through its problems I might have been able to save the company. I’m therefore delighted that SGH have chosen to sponsor my new Business Rescue service.
Here, SGH give their expert advice to directors whose business is in financial difficulties:
When a company is solvent the directors owe their duties primarily to the company’s shareholders, as the company ought to retain sufficient assets to pay all its creditors in full. As a matter of law the position changes when a company becomes insolvent, since the creditors as stakeholders have a vested interest in the remaining assets. When a company is insolvent the directors’ duties are owed primarily to a company’s creditors as opposed to its shareholders (Re West Mercia Safetywear –v- Dodd).
Although you do not have to take a test to become a company director, upon appointment as a matter of law it is assumed you know all the duties owed by directors encompassed in the Companies Act 2006, the Insolvency Act 1986, and the Company Directors’ Disqualification Act 1986. Unfortunately in practice the vast majority of people becoming directors simply have no idea of the duties they owe, and the potential personal liability that could ensue upon breaching the said duties.
A company facing financial difficulties is a challenging time for any director/entrepreneur. Careful management is required to successfully turn around a business, restore to profitability, and to protect the director from any potential repercussions if ultimately the company cannot avoid a formal insolvency process.
1. Management information
It is vital that sufficient books and records are kept recording all pertinent financial information. Unless your company maintains a software accountancy package capable of producing profit and loss accounts, and balance sheets, it is difficult to know the financial position of a given company at any moment in time. As a matter of law directors are obliged to keep themselves appraised of a company’s financial position and performance (Re Produce Marketing).
2. Review of financial information & projections
It is not enough to know how your company is performing on a particular date. You also need to consider how you believe the company will perform going forwards, and preparation of cash projections will assist in this regard.
Where a company is faced with financial difficulties, or indeed otherwise, regularly reviewing the financial performance of the company, as a board of directors, and taking a decision whether the company can carry on trading, is vital.
Ensure that minutes of all board meetings are prepared, and kept. In a worse case scenario these can serve to demonstrate the steps the directors took to protect the creditors, and indeed all stakeholders in a business.
3. Review the cost base
It pays dividends to regularly review the costs incurred by a company, and to streamline the same wherever possible. A costs/benefits exercise of the costs being incurred ought to be undertaken at regular intervals. For example you should ask yourself whether the current staffing levels are truly necessary, can hire purchase contracts be brought to an end; can losses be minimised or profits maximised when a company is facing financial difficulty? Ask yourself whether any expenditure being incurred by a company is necessary to the development of its business, and whether it promotes the ‘brand’ going forward.
4. ‘Cash is king’
Even if a company is making a ‘paper profit’ this is of little benefit if the company does not have sufficient financial reserves to fund continued business. A company needs cash/finance to be able to meet future expenditure, and a regular review of a company’s debtor days and outstanding book debts will help. Effective credit control can assist cashflow, and you should question whether old debts are truly capable of recovery, and reconsider the financial status of the company if not.
5. Avoid bad publicity
The strength of a company’s brand in the market place is vital to its future success. One piece of bad news can undo years of hard work.
One particular piece of bad news is a winding-up petition against the company, since as a matter of law winding-up petitions have to be advertised. Advertisement might trigger other creditors supporting the winding-up petition, thereby making avoiding a formal insolvency significantly more difficult. Banks regularly check whether winding-up petitions have been presented in respect of their customers. If a bank is put on notice of a petition having been presented they usually rule off a company’s bank account, and effectively freeze its working capital. In addition more and more companies retain the benefit of merchant services, through which they accept credit and debit card payments. The financial institution providing these services often acts quickly to freeze funds if a winding-up petition has been presented, as it is conscious that it could potentially be significantly exposed if the company becomes insolvent due to members of the public making claims for repayment in respect of their credit card payments.
If you are faced with a Statutory Demand or winding-up petition it is important to take professional advice quickly, as in some circumstances steps can be taken to prevent advertisement (for example an application to the court for an order restraining advertisement).
6. Funding & relationship with bank
If a company relies on overdraft or loan facilities from its bank it is vital (bearing in mind the action that a financial institution can take when scorned) to stay ‘onside’ of the institution backing a company with loan capital.
Bear in mind that the company’s bankers are not the only available source of finance that can be sourced. When a company is faced with financial difficulties there are a number of alternative forms of finance that can be obtained including Debtor In Possession finance, mezzanine finance (combination of debt and equity), and factoring book debts (which will assist cashflow, but ultimately adversely affect the balance sheet of the company).
There are also a number of specialist lenders who are prepared to invest in companies in order to assist them to avoid a formal insolvency, although the entrepreneur should expect to have to relinquish a share of the equity, and bear in mind they will have to work with such investors on a day to day basis as they will expect to be actively involved in the management of the company going forward following investment. Funding from venture capitalists can however represent a positive step, as such investors are invariably professionals who may be able to introduce the business to third party contacts, and to provide access to opportunities that otherwise the entrepreneur may not have access to with a view to developing a business/product successfully and profitably.
7. Be honest with yourself
There are invariably valid reasons why a company is faced with financial difficulties. One reason might be quite simply that the product or business idea you are trying to promote and progress is simply not as good as you think it is. There is little point investing more of your own money or some in a business if ultimately it will fail because the idea/service/product you are promoting is unlikely to succeed. Ask yourself whether the business is truly likely to succeed, and carefully consider all feedback you have received from customers.
8. Treat all creditors equally
When a company does not have sufficient cashflow it is tempting for the directors to pay those creditors who are pressing for payment, and not to pay those who are not. It is for this reason that the Crown Department is often a significant, if not the largest, creditor in many liquidations or administrations. Whilst this might make commercial sense at the time, as a matter of law distinguishing between unsecured creditors is improper. Operating a policy of non-payment of Crown monies, or continued trading whilst insolvent to the detriment of the creditors or a particular class of creditors, are offences that can result in an individual being disqualified to act as a director pursuant to the Company Directors Disqualification Act 1986.
If your company is faced with cashflow difficulties you should also consider talking to your creditors, and your suppliers. In the hope of receiving future orders, creditors and suppliers may be prepared to agree longer payment terms.
9. Seeking professional advice
Relying on the right professionals, and finding professionals you are able to trust, is vital. It is also important not to ‘stick your head in the sand’, but to seek professional advice expeditiously and act upon professional advice received.
A company’s accountants may not have insolvency experience, and may not necessarily be the most appropriate people to talk to. There are a number of turnaround professionals, licensed insolvency practitioners, and insolvency lawyers who have the experience which you may need to rescue your business, and who may be able to provide you with guidance. As in all walks of life there are ‘horses for courses’, and seeking advice from the right professionals is of paramount importance.
10. Formal insolvency procedures
A formal insolvency procedure ought only to be considered as a last resort, as invariably it is likely to adversely affect the brand and reputation of a business as a result of negative publicity.
Having said that, if one cannot be avoided, a formal insolvency process can be used to rescue a company’s business through an administration (which affords the benefit of a moratorium protecting a company during the period of an administration) or a company voluntary arrangement (which involves a company agreeing to repay its creditors Xp in the pound, over a period of time). The advantage of a company voluntary arrangement is that the directors retain control of the company’s business during the period of the CVA, and although rarely used in practice the changes introduced by the Insolvency Act 2000 allow small and medium sized companies to gain the benefit of a moratorium pending approval of a CVA.
Daniel Sejas
Daniel Sejas Insolvency Partner SGH Law daniels@sghlaw.com |
Ian Grier
Ian Grier Insolvency Partner SGH Law iang@sghlaw.com |