UK: Restructuring & Recovery Quarterly Bulletin Spring 2010, Another Busy Year?

Last Updated: 30 March 2010
Article by Anthony Spicer

Editor's comment

Steady start to 2010

Thank you to everyone who responded to our last newsletter and opted to have future editions to be sent out electronically. The vast majority of copies will be sent out electronically in future but of course we remain happy to provide printed versions if that is preferred. Should you wish to opt for an electronic copy please contact Joanna Camp, joanna.camp@smith.williamson.co.uk

It is generally fair to say that the restructuring & recovery industry has seen a steady volume of new cases in 2010 but perhaps not the rush that had been expected. The reasons for this are many and varied but perhaps the use of HMRC as a 'lender of last resort' has been a factor and in this issue Mark Webb and Martin Courtney give an overview on HMRC's time to pay scheme.

Also in this issue, Mark Boughey gives some guidance on acquiring failing business and Jamie Gould reminds us of the basic steps and procedures, factors and invoice discounters can take to protect against fraud. Claire Morris also discusses the increasing number of insolvent personal estates caused by fallen property prices.

Finally, if you know a business which could benefit from a review of its funding arrangements, then Smith & Williamson could help. We are offering a free funding review through our fast track funding service to businesses with more than £2m turnover, or over £500k in bank debt. Please see the back cover of this newsletter for further details.

Anthony Spicer

When buying a failing business, seeking some distressed acquisition assistance will give you the best chance of success.

While we now know that 2009 was unprecedented in terms of the banking and economic crisis, it takes a brave economist to make predictions on the prospects for 2010. Some foresee a 'V' recession, others a 'W'; certain forecasts are more optimistic than others and we are still braced for a wave of business failures. The most honest confess they are only making a qualified guess.

While we're sure that insolvency practitioners will be busy in 2010, it is unclear exactly how busy. One thing we will predict is that 2010 will also be a year of opportunity for certain groups of investors, buyers and management teams actively looking to acquire distressed businesses and assets.

BUYING A BUSINESS IN DISTRESS? IT'S TIME TO CONSIDER THE AA...

By Mark Boughey

The reasons for business failure are wide and varied. Some of the businesses we have dealt with this year have failed due to lost customer orders, low consumer confidence, over-leveraged balance sheets or poor management. In many instances, however, there is a core profitable business or team of people worth rescuing.

When buying a business in distress, the potential acquirer may be in a competitive situation, will certainly need to act quickly and is likely to be dealing with an insolvency practitioner, their specialist insolvency lawyer and probably a business support bank manager. While the usual fundamentals of a 'corporate finance' type transaction will apply, the playing field and rules can be very different. Therefore, a purchaser will be most likely to succeed in winning and completing the transaction in a quick timeframe and for the right price if they have a strong team of advisers on board and sign up for some distressed acquisition assistance (AA). Here is a brief look at some of the benefits.

What's in the toolbox?

Distressed AA can be flexible and tailored to fit the specific circumstances of the deal. It is about pulling together an advisory team which builds on the strengths of the existing corporate finance advisers and the needs and experience of the buyer and transaction.

For example, distressed sales may involve the buying of a 'business and its assets' rather than shares, so an insolvency specialist can be introduced to help structure the deal and sale consideration in a way that would be expected and on terms that are most likely to be accepted by the seller.

Distressed funders and investors will also be a key part of the AA team, and the insolvency practitioner will be able to introduce these parties quickly, with an up-to-date knowledge of their capacity and appetite to deliver funding solutions in the tight time scales required.

Qualified mechanics?

The advisory team can be very broad. For example, Smith & Williamson has access to corporate financiers, insolvency specialists, tax advisers and sector experts, who will be used depending on the needs and demands of the transaction. It is also not uncommon to introduce an independent specialist to the team, such as a turnaround director, who can help identify and repair the operational or accounting problems in the business that may have caused its downfall. Organisations such as the Institute for Turnaround (IFT) offer access to a good network of accredited and experienced turnaround professionals.

Be there in an hour?

Time is of the essence in any distressed sale, so it is important to get your distressed AA adviser to the scene of the deal as soon as possible. Most insolvency specialists are used to working at short notice and to tight deadlines, so the call will be welcome and your chosen adviser responsive.

What services are provided and how much will it cost?

Assistance needn't be expensive and fees will reflect the size and complexity of the transaction. Your distressed AA team can be engaged to deal with the full transaction, or have a role tailored to specific pieces of work such as cashflow reviews or acting as a facilitator for the buyer between the incumbent insolvency practitioner, the company, the specialist lawyers and the business support manager in the bank. All these parties will take comfort in dealing with a buyer who is advised by a professional familiar with the workings and terms of the Insolvency Act and distressed sales generally.

How do I sign up?

Smith & Williamson is, of course, a good first point of contact, but the buyer's existing banker, accountant or lawyer will be able to help refer the right people to the situation at, hopefully, the right time. Even better, talking to the directors or investors in your network who may have been through this process and successfully worked with distressed AA advisers will offer a first-hand recommendation. We have a few we can introduce you to.

TIME TO PAY - HMRC'S BUSINESS PAYMENT SUPPORT SERVICE

By Martin Courtney and Mark Webb

In 2009, HM Revenue & Customs (HMRC) introduced the 'time to pay' (TTP) initiative scheme for businesses struggling to survive the recession. It was recently reported that this has now topped £4.3bn in deferred payments. Continuation of and commitment to the scheme was announced in the December Pre-Budget Report, notwithstanding that we know HMRC is now coming down much harder on first-time applications and certainly repeat deferral applications. HMRC suggests that for deferral requests in excess of £1m it will require some form of third party comfort.

HMRC is clearly contributing to business survival – which is good news – but there will come a time when enough is enough. Businesses need to manage their tax cash flows and this is an ideal time for identifying opportunities for tax refunds and minimising tax obligations. It may also mean using the TTP arrangements for VAT, PAYE/NIC and corporation tax, and possibly even renegotiating repeat deferrals with HMRC where perhaps over-optimistic projections have not materialised and businesses struggle to meet agreed payment plans.

Businesses need a holistic approach to getting their proposals to HMRC right at the first, and certainly no later than the second attempt. This means understanding the timing of all tax cash flows. We've outlined three key steps to help you fulfill your requirements.

  1. Communicate with HMRC at the right time, to alert it to the need for payment assistance, or extension/amendment to the existing TTP arrangement. The business must be able to demonstrate a genuine need for business support, the steps taken to address the issues, and its commitment to meeting obligations.
  2. Articulate the business case for deferral, while anticipating HMRC's likely responses and concerns regarding current circumstances.
  3. Ensure sensible but achievable cashflow projections and payment plans that meet the needs of the business within HMRC's constraints.

Most of HMRC cases can be expected to be dealt with through the helpline channel as routine. However, the more complex cases with significant amounts and special features, and/or repeat deferrals, are escalated. This is typically where businesses need specialist help. Bear in mind that HMRC intuitively does not regard itself as the nation's banker, and expects all other sources of finance to have been explored.

THE FRAUDSTERS ARE GETTING SMARTER

By Jamie Gould

Fraud, whether it is pre-meditated or circumstantial, remains the biggest threat to all factors and invoice discounters. The members of the invoice finance sector (discounters) are only too aware of this, yet fraud still remains and is growing in line with the speed with which the sector expands.

None of the discounters are immune to fraud but some are better at highlighting and deterring it than others. The fraudster will always find the path of least resistance and so will prey on those most desperate to complete a deal. These are sometimes also those with the weakest controls and checks. Often a lot of time and effort is put into a new deal to find that it falls down at the 11th hour due to 'irregularities'. The time and effort is well spent if it means that a potential fraud is deterred. There are no short cuts to underwriting and due diligence has to remain thorough and tight.

In an ideal world, the hours of work put in at the front of a deal will deter a premeditated fraudster, who will opt for a less diligent discounter. Having said that, we do not live in an ideal world and almost every month we hear of pre-meditated frauds. So the fraudsters seem to be getting smarter.

We recommend that the deepest searches possible are undertaken on the individuals, and their current and previous companies where they act as director and also shareholder. Search their names in popular sector websites such as PrintWeek or TruckUK and read the blogs. Undertake a name search of newspapers in their local area as well as national newspapers. Take references from respected sources and always be guided by your gut feeling.

Circumstantial fraud is far more common but no less devastating. It can happen to anyone and often catches the discounter off guard as it is sometimes the most established and well respected client which is the perpetrator. As the economy slowly eases itself out of recession and clients start to chase turnover again, the incidence of this type of fraud will increase. Many clients will have arrears built up to HMRC and possibly rent arrears too and the temptation for some to pre-invoice the next big contract will be great. The best way to pre-empt this is to get out and see your clients more, totally understand where their business is and talk with them regularly.

INSOLVENT ESTATES OF THE DECEASED

By Claire Morris

One of the less obvious effects of the recession is the impact it has had on deceased estates due to the continuing fall in property prices. Also, as elderly people struggle to make ends meet and seek to cover their expenses by taking out equity release schemes or by borrowing from banks and credit cards, at the time of death many properties are no longer free of mortgages. Values of shares have also been affected and often dividends which were being used to supplement income have virtually vanished over night.

Solicitors instructed by personal representatives to deal with obtaining a grant of probate and the administration of the estate are sometimes left in a difficult position. The estate might take years to conclude and during that period the value of the assets may well have diminished to such an extent that the estate becomes insolvent. If the value of the property falls, there may be insufficient funds within the estate to meet all the liabilities. Solicitors and personal representatives need to tread carefully in determining whether a deceased's estate is insolvent.

If it is they can either seek to administer the estate in accordance with bankruptcy law or an application can be made for an Insolvency Administration Order.

If solicitors choose to administer the estate they will need to have a detailed knowledge of bankruptcy proceedings as there are many pitfalls for the unwary. As soon as it is determined that the estate is insolvent it is essential that the parties administering the estate should make no distributions to ensure that the estate is protected.

The alternative route would be to seek an Insolvency Administration Order. If made by the Court the estate will be managed initially by the official receiver, and often then by a trustee who would either be appointed by the Secretary of State or by the creditors. The trustee would seek to administer the estate, essentially as a bankruptcy, by realising the assets and making a distribution to the creditors.

The Insolvency Administration Order is often the preferred route for solicitors and personal representatives who have been left in this difficult position. Although the personal representatives or executors will be asked to complete a statement of affairs in relation to the deceased estate, they have no further involvement in administering the estate. If an Insolvency Administration Order is made, it is deemed to have been made on the date of the debtor's death and takes effect retrospectively from that date.

From a practical perspective, this means that any payments made out of the estate by the solicitors/personal representatives are likely to be void under Section 284 of the Insolvency Act 1986 unless they have been ratified by the Court. To avoid falling into this trap, seek advice immediately once it becomes apparent that the deceased estate is likely to become insolvent, even if there is an impending sale of a property.

We can only hope that the property market recovers quickly, although current predictions seem to indicate that this is unlikely to return to 2007 levels for some time (albeit various commentators are already talking about green shoots of recovery). Certainly, in ordinary bankruptcies, we are not seeing an upturn in property values and most insolvency practitioners acting as Trustees are still faced with dealing with a huge number of properties which have negative equity.

To avoid making expensive mistakes where insolvency might threaten the deceased estate being dealt with, seek expert and timely advice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.