There is no doubt that the last 18 months or so have been some of the most challenging for anyone running a business. Whilst some have adapted quickly and even prospered in these challenging times, others have seen a financial catastrophe.
Interestingly, there have so far been far fewer business failures than many would have predicted, in part of course due to the huge amount of government support with Furlough Scheme, Eat out to help out, Rates reductions and access to easy funding through CBILS and BBLs that would not have been available from cautious high street lenders in previous stormy waters?
Using the same analogy, many in the insolvency profession feel we are just in the eye of the storm! Businesses are returning to normal, demand for most products and services is high and money is there to be spent by consumers. Apart from the logistical challenges of satisfying demand with supply change and delivery difficulties, things are pretty good for most businesses. The real test is yet to come. When all government support stops, when Loans need to be repaid, when the need to borrow new money is direct from a bank without a government guarantee, some may find themselves back in stormy waters.
So if your business is hanging by a thread and concerned that there may be trouble ahead, it is important to know what options you may have. Below are some case study examples from one of the firms we work with in this complex area.
Lameys Insolvency & Business Recovery have supported clients when they are faced with financial distress. Lameys can help provide struggling clients with a formal Recovery Process through a Creditors Voluntary Arrangement (CVA), which allows a viable business to:
- Restructure
- Write off debt
- Flourish and succeed
Despite an industry average of only 14.9% of CVAs concluding successfully, we have managed to achieve great outcomes when it appeared that few options were available and a close down appeared inevitable. The key point is that most creditors would rather get some money back and retain a customer, than see the business close and lose all of the money owed to them.
Case study 1
A domiciliary care provider for elderly residents across Plymouth and the wider South West.
Suffered as a result of an increase of national competitors entering the local market, driving down prices and increasing staff turnover. Attempts to diversify to spread the risk of exposure were unsuccessful and generated further losses.
A revised business model, focusing on increased efficiency and targeting care provisions with the highest margins, was determined as feasible. However, this would only be possible if creditors approved an estimated 60% write off of their historic debts.
Appreciating the benefits of a partial return and continued trade, creditors approved the proposal for a CVA. The CVA successfully concluded in early 2021.
Case study 2
An electrical contracting business that suffered a huge bad debt.
In this case the cause of the problems was a single event outside the control of the company. Forecasts showed the business could make money going forward, but that it could only pay off 70% of the old debts over a period of 5 years. Creditors had a choice to accept less, and slowly, or shut the business and get nothing.
The CVA was approved and completed in November 2019. The business continued and creditors received most of their money as well as the ongoing opportunities to do business.
Case study 3
A criminal law practice (the ones the police call when you don’t have a lawyer!)
Pushed to the brink when one government department (The Legal Services Commission) slashed agreed fee rates without consultation and didn’t pay its bills on time, whilst another department (HMRC) wouldn’t wait to get paid (PAYE and other taxes). Ridiculous as this seems, the business almost closed because of this conflict.
A 5 year CVA was agreed with creditors. This also ran as planned and concluded in December 2019 with all creditors receiving around 60p in the £ against their debts (mostly HMRC!).
What do these real life examples illustrate?
All the businesses were well run and were profitable, but a single event or change in circumstances caused a financial crisis that needed a formal, legal solution to protect the business, the directors and the owners. Lameys took over the handling of creditors, dealing with the bank, landlord and all employees which was a huge relief to our joint clients in the examples above.
Sadly, directors can wait too long before seeking help, and then the business is beyond saving. However, even for a failed business there is a huge difference between a ‘head-in-the-sand’ approach, and one where the directors face up to the issues and carefully manage the closure with the help of a licenced insolvency practitioner.
It is even more important that directors take advice as early as possible when personal guarantees have been provided. Sometimes, timely advice and action might mean a director keeps their house!
What if the business cannot be saved?
Lameys are able to provide advice in respect of other Recovery Processes. Even where is it not possible to save a business, there will still be elements that would benefit from processes such as an administration or liquidation. Lameys are also able to undertake solvent liquidations, formally winding a company up and distributing reserves to the owners.
Regardless of the Recovery Process, there are also further opportunities to support clients through tax rebates for shareholders and using company tax losses to reduce HMRC liabilities (or potentially turn a liability into a rebate).
So if any of Mark Holt & Co clients or contacts, are suffering with financial difficulties, please bear in mind that advice sought at the earliest opportunity keeps many options open. The collaboration between Mark Holt & Co and Lameys have turned around many struggling businesses through Recovery Processes, giving businesses the best possible chance to succeed and flourish.