Ten things you must know about business insolvency…

These are the ten things you need to know about business insolvency:

1. This is a real turning point in your life, treat it as such!

Make sure you have identified in your own mind, and with absolute clarity, what you want to achieve first and foremost, and why.  Then identify what your next best solution is, and why.  And then identify your third best.  This will greatly help your decision-making.  Why? because you’ll probably find you won’t be able to save everything you now ‘hold dear’.

Challenge yourself – do you really want to carry on in a similar business, or would you like a complete change?  If you want to do the same or something similar, ask yourself what you are going to do differently, and how, this time around are you going to make sure it’s a success?

2. The business and the company are not the same thing 

A formal insolvency process can be used to split out a viable business from its insolvent company shell, protecting the business yet ridding it of debts it can’t pay.  This isn’t debt avoidance, it’s finding a practical solution to real life problems.  But is has to be done properly.  Recognise that the business and the company are two different things!

3.  Smaller companies have fewer options and less time to act than bigger businesses

Those on whom smaller companies depend provide less support when things go badly.  Your bank, rather than supporting you, will go into self protection mode.  It’s up to you and your advisers to find a solution, and quickly.

4.  There’s often nothing worthwhile saving in the smallest of companies

The informal way in which small companies tend to operate often means the goodwill in the business lies in the directors and key staff, rather than in the company itself.  There’s less reasonfor you or an insolvency practitioner to spend time, money and effort to save the company.  It’s this that often makes liquidation the most appropriate route for small companies.

5.  All formal insolvency procedures damage the business

Some just do more damage than others.  You’ll need to know how the different informal and formal solutions effect your business.  Don’t listen to bland assurances made by any insolvency practitioner or anyone else that the insolvency won’t have any repercussions on the business, because it will!

6.  Cost is a big issue in choosing any insolvency process

Every formal insolvency process is expensive, some more so than others.  Cost is, in relative terms, a far bigger issue for smaller companies.  This can mean, for example, that the cost of an administration of a small company can outweigh any benefits gained: a sale of the business and assets followed by a liquidation could be a less expensive option.

7.  Not all insolvency procedures are the same

Each procedure has its own nuances, from the outside they seem subtle but they’re not.  It’s vital that the right procedure is chosen, and that can be determined by what may to you seem to be small factors.  It’s important to consider all the options.

8.  You’re not obliged to spend your own money to pay the insolvency practitioner’s fees

If there’s not enough money or assets in the company to pay for the insolvency process, there are alternatives.  Couldn’t your money be better spent, say, to finance your new business?

9.  Once the company goes into formal insolvency, you lose all control

The insolvency practitioner makes the decisions.  It’s important you know his intended strategy, right from the planning stage.

10.  Liquidation doesn’t stop you earning a living

In the UK responsible entrepreneurs are encouraged to give it another go – indeed many of today’s most successful businessmen weren’t a success first, second, third, even fourth time around.  However, setting up a phoenix operation isn’t always that easy as the banks, customers and suppliers are not always as supportive as you’d like or expect.   An added complication is that the rules over re-using the company’s name, should the company go into formal insolvency, are unnecessarily complex.  And if you breach those rules, there are severe penalties, including personal liability for the debts of newco should it fail.

Go into your meeting with an insolvency practitioner with these points uppermost in your mind.  Then, and only then, can you hope to make the right decisions.

If you’d like to buy a copy of my e-book preparing you for that meeting, go to my website at www.midlandsbusinessrecovery.co.uk

What else do you need to know to solve your debt problems?

 

Some people have several options to solve their financial problems.

The problem is no one solution is ever ideal, each will mean you giving up something.  You’ll have to compromise.

Get used to this.

Focus on the bigger prize of losing your unsecured debt.

Take time to assess the relative merits of each solution.

Have in mind throughout that there’s a trade off between the control you have over the process and the amount of debt written off.  How prepared are you to surrender to a formal insolvency process?

If writing off debt is what you really want or need, as this is normally achieved through a formal insolvency process, be prepared to ‘lose control’ of any assets you have.  This isn’t as bad as it first sounds – if you know how the process works, you can still be reasonably certain of the outcome, what assets you may or may not lose.

If retaining control is important, then look at taking one of the more informal solutions.  But recognise that you will probably not be able to write off so much debt.

If you’d like to talk things over with us, call Paul on 01902 672323.

Warning signs that a Credit Union is in trouble…

In recent months several credit unions have gone bust.

It’s no accident that so many unions are failing, you see there are major structural and operational difficulties in the sector generally and within many individual unions, which problems are unlikely to go away soon.

Continue reading “Warning signs that a Credit Union is in trouble…” »

The second golden rule is if you have big debt problems is…

‘Only choose an option other than bankruptcy if it better protects your income or assets’

The first golden rule has shown you if you go into bankruptcy, it’s almost certain that you’ll lose no income nor assets.

So, please ask yourself two questions

  • Will bankruptcy see me losing any income or assets that are important to me or my family?
  • Will the other solutions I’m thinking about taking better protect my income or assets?

The key point is that in the real world most other solutions don’t better protect your income or assets than bankruptcy.

So…

Why do it?

Come back here in a week’s time for some other essential facts…

Celebrity endorsement – ‘of course we can trust them’

I’m early, I know, but this is a topic which for me could turn into a real rant…

And this is why….

Three weeks ago the Office for Fair Trading said on their website that it is giving the leading 50 payday lenders, who make up 90 per cent of the market, 3 months to change their business practices or risk losing their licences.  The OFT said it uncovered widespread irresponsible lending and failure to comply with standards. So much so that they’ve been told to change their ways.

The report said there were problems throughout the entire lifecycle of payday loans, from advertising through to debt collection, and all across the sector, including by leading lenders that are members of established trade associations.

The OFT’s report cited the following areas of non-compliance:

  1. lenders failing to conduct adequate assessments of affordability before lending or rolling over loans (lend today, worry about getting it back tomorrow – haven’t we been here before?)
  2. failing to explain adequately how payments will be collected (an education issue – when are we going to teach our kids to understand how money works?)
  3. using aggressive debt collection practices (well we all knew that, but just wait until they sell on the debts they can’t collect – they won’t be selling them on to cuddly debt collectors)
  4. not treating borrowers in financial difficulty with forbearance (see 1).

None of this should come as any surprise to any of us.

What really angers me though is how a good many of these and similar lenders to the vulnerable use celebrities to endorse their products… to suggest that somehow because someone who’s in the public eye, but knows nothing about what they are talking about, promotes their product, it’s all ok, that’s it’s all legit.

Let’s look at some of the celebrities endorsing the payday, pawn broking and consolidation loan companies:

Nicholas Parsons and those annoying puppets – Wonga (APR 4,214%)
Carole Vorderman – Firstplus, click here
Kerry Katona – surely the ultimate in irony, she’s been personally bankrupt – nothing wrong with that but why oh why would she come out now after bankruptcy and encourage others to borrow? (sorry, I suspect we’ve got the answer there?) – Cash Lady (APR 2,670%) – click here for her cheesy advert and here for a written interview (it’s priceless, apparently she’s a normal Joanne in the street with everyday bills to pay, like school fees and nannies!)
David Dickinson – The Money Shop (go on, I dare you, click on this, turn the volume up, but make sure you’ve a bucket handy).

The worst?  Difficult choice, all the wide toothy smiles, cheesy straplines, bright blue eyes, sunshine, young good looking mums doing normal things yet worrying about trying to make ends meet, the sexiness of and ease of taking out a lone….mmm, now let’s see…. my vote goes to a firm of pawnbrokers who use a talking sock to sell its loans – click here.  Yuk!

I’ve been talking in schools a lot recently, warning against the perils of payday loans – the ease with which money can be borrowed compared to how difficult it is paying them off.  You see lending to the vulnerable is big business, about 7 million new payday loans are taken out every year.  And the numbers and volume of loans are growing.

When I talk to the kids I point out that although the adverts for payday loans suggest they are take out to cover emergencies – car repair, water leak, computer drink spillage, that sort of stuff – that’s not what they are used for in reality – they are used to bridge short term gaps in normal day to day spending …you know when you’ve too much month left at the end of your money…

I also teach them that interest on payday loans runs on average at £25 for every £100 loaned for 30 days.  Yes, £25 for each £100…for just 30 days.  Can I make a suggestion?

..that the next time you walk along your local High Street past one of these shops, you stop and look in their window at their terms.  But make sure that you do a few stretches and bends first as you’ll find them on a pop up banner at or below knee height…in very small typeface…below the smiley, cheesy grins in the advert above.  So don’t forget to take your glasses and the Voltarol.

The OFT report went on to say that up to half of payday lenders’ revenue comes from loans that last longer than a month.  You see most loans are rolled over or refinanced, several times over.  So it’s not £25 for every £100 loaned, it’s much much more.

I just love that Wonga advert on television, don’t you?  Next time it’s on, listen carefully.  They make a big, and positive, thing that one quarter of their customers repay their loan in full and within time.

Putting to one side the fact that if you were charged over 4,000% interest, you’d do your very best to repay it in full and on time, isn’t that great news that so many people settle ‘early’?

No, not at all…

You see, I say when I go into schools, ‘flip it, that means that three quarters of people, that’s three times as many people, don’t repay on time as do’.  It’s advertising talk, turning a huge negative into a positive, hoping that no one notices.  And most don’t.

So perhaps it’s not surprising that Wonga’s accounts for 2011 showed it made a profit of £44m on turnover of £184m?  Not a bad profit for a business which is obviously having to spend a lot of money trying to capture market share…

I wonder just how great a business Wonga and the other payday lenders would have if people used the loans for what they were (arguably) designed for?  Or if interest rates were more reasonable?  But then again, their profits are assured for years to come because of bad education, human gullibility and fallibility!

But there’s another point…

Perhaps we ought to be asking ourselves more just what sort of world we are bringing our children in to?

A good many of people I know who live abroad have told me their views of the UK… that the only growth area we have is in debt.   What a sad indictment of the land we live in, the times we’ve created.

Perhaps we ought to be asking our MPs why they are doing absolutely nothing about the horrendously high interest rates payday lenders charge the most vulnerable members of our society? And why more time and resources are not being given to improving our children’s financial education?

I know of several insolvency practitioners who are preparing to upset the payday lenders’ rates as an ‘extortionate credit transaction’ under the Insolvency Act – something they can do after the borrower has gone into bankruptcy.  The problem is the very trigger for doing so means the insolvency practitioner typically has no money to fund an action – it could be a case of David v Goliath – on something that’s a matter of principle for the lender but has a small effect in the bankruptcy in terms of its impact on creditor dividends.  But wouldn’t it be great if, for the first time in a long time, the insolvency profession were to take a moral stance that those in powers and Joe and Joanne Public aren’t overly interested in?  Then, perhaps the public may not be as shocked as we are by the level of debt people and this country are in.

If however, you feel as I do that something just has to be done about these payday lenders, how they operate and use celebrities’ ‘good names’ and ‘mis-information’ to promote their products, why not write to your local MP – here’s how you find their details.

By the way, we’re quieter on the formal insolvency front than we have been for a good while – this isn’t a bad thing because we’re doing far more ‘positive’ work right now.  But what it does mean is that we have spare capacity for any liquidations, administrations and receiverships you may need carrying out.  Which of your clients are struggling so badly that they either need to call it a day or lose debt?

I’d really appreciate your feedback, good or bad, on my e-mails.

Paul Brindley
Midlands Business Recovery

‘Doing more for Black Country Businesses’