Since January of this year, it has been evident that the rate of corporate insolvencies in the UK is on the decline. Although it would be nice to think that the economy is improving, there are strong indications that the markets have yet to recover.
In fact, the Belfast Telegraph reported that the International Monetary Fund (IMF) still expects recovery to be slow and the output to be well below normal for the foreseeable future. This seems to be at odds with the fact that fewer companies are being made bankrupt.
So far, in the first 2 quarters of 2013, the rate of insolvencies has leveled off at .08% and this is the first time bankruptcies haven’t increased quarter by quarter since 2007. However, this is at odds with the gloomy financial forecast released by the IMF.
Why the Discrepancy in Figures and Forecasts?
Looking at the daily papers you see financial forecast after financial forecast portending doom and gloom in so far as the UK economy and GNP are concerned. How can this be the case at the same time as fewer companies are going bust?
According to figures recently published by Experian, insolvency statistics have continued to improve over the past couple of years. As mentioned, at the moment company insolvencies are holding at .08% for the past two quarters, which is good news indeed for struggling businesses.
On the other hand however, the economy continues to skirt recession which leads us to question how companies are surviving. Actually, the answer to that is quite simple – Insolvency Practitioners! Since the Insolvency Act 1986, the role of insolvency practitioners is becoming increasingly important.
There are now a number of recognized ways in which an IP can help a distressed company to either stay solvent or quickly return to solvency. Many of the recovery solutions must be handled by a registered Insolvency Practitioner. So because of the efforts of an IP many companies are able to avoid being wound up. These people are seldom mentioned when Government releases statistics, but it is largely through their efforts that UK companies are rising from the ashes of despair.
Common Business Recovery Solutions
Depending on the level of debt and other circumstances, there are a number of rescue solutions which may be recommended to facilitate a business turnaround. Amongst the most common business recovery options are:
- Company Voluntary Arrangement (CVA)– gives time to pay debts
- Invoice Factoring – immediate increase in cashflow
- Invoice Discounting – immediate cashflow
- Liquidation of Assets – may suggest liquidating property and assets to increase cashflow
- Pre Pack Administration* – selling the business before being declared bankrupt
- Time to Pay – Negotiations with HMRC to pay over an extended period of time
*It should be noted that there has been much abuse of pre pack administration in recent years and government frowns on IPs advertising this as a rescue solution. But, if handled properly this can save a company that has the potential to be solvent with a change in directors/leadership and an influx of working capital.
Company Voluntary Arrangement – Most Widely Used Rescue Solution
When all is said and done, most businesses employ the services of insolvency practitioners to negotiate payment arrangement with their creditors. Often an experienced IP can negotiate a settlement which is significantly lower than the total amount due and over a period of one to five years, obviously most creditors prefer a shorter period.
If a company is threatened with a winding up petition by a creditor, chances are they are also late with taxes such as corporation taxes and/or NIC and income tax on employees. Although there is the option of asking HMRC to give them Time to Pay, many directors are reluctant (or just plain scared!) to talk to the taxman.
Instead of asking for extra time, directors prefer a CVA so that the IP is the contact person who deals with HMRC or Companies House. Once delinquent debts are agreed, the company can go on working, freeing up a good bit of cash to use for day to day expenses.
It is not an exaggeration to say that greater than 90% of rescued companies are where they are now due to the services of Insolvency Practitioners. That is a fact that you won’t hear in figures and data released by credit agencies such as Experian or organisations like the International Monetary Fund.
See Also:
- What Is Pre Pack Administration and How is it Saving Jobs in the UK …
- What Is Factoring Accounts Receivable?
- Using An IVA to Reorganise Debt
- 4 Practical Ways to Keep Your Business Profitable during a RecoveryÂ
- Healthcare in the US vs. the UK
- Employment Trends in the US
Bio: This article was provided by Keith Tully, managing director of Real Business Rescue. For further information on how his team of business recovery and turnaround specialists can help your struggling business, visit their website at www.realbusinessrescue.co.uk.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net
