CreditFILE July 2010

In House News: Brethertons Crowned Litigation Team of the Year

As Credit FILE readers will know we were delighted to be crowned Litigation Team of 2010 at the recent Credit Today Awards.  We have also recently won the Coventry Evening Telegraph award for “Best use of IT & Communications’  which recognised the marketing launch of  our online legal services LawSense.co.uk,  and we were also finalists for the ‘Contribution to the Community Award’ in recognition of the charity work the staff and partners undertake within our local communities.

Special Report

If the economists/ doom-mongers/the German psychic octopus   (delete as appropriate) are right, we may be looking at a double dip recession. If this happens then protecting your business from customers/suppliers becoming insolvent becomes even more important. In this special report written by  BRI Recovery we highlight some of the practical steps you can take to  ensure you do not become one of the casualty statistics of the recession.

It pays to get these things right.  Knowing exactly who/what you are dealing with is important.  Limited Company, LLP, Partnership, Sole Trader – you need to know.  In the excitement of doing a big deal, winning someone over from your competitor, these things can get lost, assumptions can be made and then, when things go wrong, you can find you have inadvertently made things very much worse.

Terms and conditions of trade

Whose prevail?  Basic stuff but, in dealing with the large number of Reservation of Title claims we do, you soon learn that the “battle of the forms” can be just that – a battle.

Are there terms and conditions on the customers’ purchase order, on your order acknowledgement/delivery note/in your products catalogue/on the website and are they consistent across all of the set?  Are they referred to on the back of invoices and/or statements?

Getting them right and agreed to at the outset, with no leave to vary, securing guarantees, etc. may prove to be well worth the extra effort and the time - when they want something from you, not after you have already supplied.

Credit checks and limits

At creditors’ meetings, on the rare occasion someone attends, we often see a creditor berate the director for taking him for £X.  When asked what the credit limit was, it is generally found there was none or it was a fraction of the final debt.  Set limits, ensure they are adhered to, do your checks before the horse has bolted.  A simple search with a credit agency might cause you to pause before sending the goods/providing the service.  The agencies set limits for a reason – so should you/your clients. 

Strategic

• Lacking in vision, focus is on immediate issues
• Lack of success in planning and implementation
• Undercapitalised, requires an equity injection
• Dominant stakeholder unwilling or unable to make further investment
• Inability to achieve disposal plans of whole or part of business
• Closure/unwinding of business streams or locations
• Plans to return cash to shareholders

Business

• New IT or accounting system not working properly
• Weak, unstable or consolidating industry sector
• Dominant customers who can dictate terms
• Weak financial health of key customer(s)
• Key customers have plans to downsize
• Half-built ‘business plans’
• Post merger integration problems
• Problems with, or the end of SPVs and JVs (Special Purpose Vehicles and Joint Ventures)
• ‘Going concern’ issues
• Quality problems, high rates of credit notes or disputes

Management

• Changes in key management and/or key positions
• Management team ‘in denial’
• Poor management controls (financial and/or operational)

Financial

• Challenges in renegotiating or requesting increases in bank facilities
• Breaching bank or other lending covenants
• Immediate capital constraints
• Inaccurate/no forecasting
• Profit warnings
• Refinancing
• High rate of “cash burn”
• History of losses or a deterioration in performance
• Delays in producing monthly management accounts and/or ad-hoc financial information

Alarm bells – fail to act on these and you may fail…

General

• Auditors unwilling to sign clean accounts
• Delays & difficulties in preparing management accounts
• High level of unusual transactions or inter-group trading
• High level of  professional fees paid to other advisors
• Delays and blockages in introducing investigating accountants
• Management attitude very defensive, blaming others
• Withdrawal/reduction in credit insurance

Trading

• Recurring negative cash flows
• Unable to fund future capital investment
• Gross or operating losses
• Poor performance especially over peak trading periods
• Deterioration in forward order book
• Loss of key customer(s) or contract(s)
• Lack of credible plans to reverse losses or cash outflows
• Improvements based on ambitious sales growth

Assets

• Revaluation of assets to bolster balance sheet
• Significant sale and leaseback transactions
• Ageing debtors
• Obsolete/ageing stock
• Significant write-downs in asset values

Liabilities

• Ageing creditors and increasing current liabilities
• Statutory demands and writs
• Arrears to Crown creditors/time to pay agreement(s)
• Suppliers on stop/renegotiation of credit terms

Funding/Cash

• Bank facility not renewed on an annual basis
• Substantial increase in overdraft requirement
• Requests for enhanced security/personal guarantees
• Change of banking arrangements actual or proposed

Fraud

As we climb out of recession it is likely that incidence of fraud will increase.

Some of the insolvency related frauds are old hat and simple, they frequently still work and cause other companies to fail in their wake.

A type of “long firm” fraud is simpler and more effective when tired directors are clutching at straws, looking for a way out.  Exhausted, they read of help where they will be paid a modest sum, or possibly pay a modest sum and someone else will take the company out of their hands, replace them as directors, etc. etc. and they can just walk away.  They sign the forms for resignation as directors, they see the forms for appointing the new directors but Companies House won’t see either of the completed forms.  Using the fact that the company is long established and has a reasonably good trading history the company places significant orders for stock, usually easily moved on, and once received it is all shipped out with suppliers never to be paid.  A Bank Holiday weekend is often used as the cover for this.

The original directors don’t know what has hit them, they are still in office, their company is really in ruins now and, possibly worse still for them, their suppliers, landlords, leasing companies and possibly others all now look to them for recovery where the directors have given personal guarantees to them ….

For the perpetrators of this type of fraud an old, established company makes for much better cover than a new one set up for the purpose.  The old adage, “if it sounds too good to be true, it probably is”, remains relevant.

When things are getting shaky and directors opt to leave while others continue or leave in the above circumstances, it is important to file the requisite forms at Companies House oneself and to make sure the changes are effected.  Similarly, where control is being surrendered, release from guarantees, etc. is essential before letting go of the reins.
 
This article has been reproduced with kind permission of Peter Windatt of BRI Business Recovery and Insolvency. BRI have offices in Banbury, Milton Keynes, Coventry, Northampton and Southampton   www.briuk.co.uk- Free Training For Your Staff at Your Office

Webinars

Webinars are a great way to train your staff without leaving the office and what’s more they are FREE! The presentations will last about 1hour and will be followed by the chance to ask questions, raise specific topics and share opinions.

Retention Of Title In A Nutshell
Date: 21st September 2010
Time:12.30pm
Speakers: Kate Ollis & Edward Bible.

Relying on a Retention of Title Clause contained in a contract or terms and conditions of trading is sometimes one of the last tools available to creditors, who want to recover their goods when invoices remain unpaid. However getting goods back is difficult as anyone who has dealt with a liquidator will confirm.

This Webinar will explain:-

• Why businesses should have retention of title
• When they should not have
• How they work
• Why they fail
• How they should be used
• Dealing with liquidators

Training Your Staff For Mediation - what to expect when the courts are not involved in the debt recovery process
Date: 12th October  2010
Time:12.30pm
Speaker: Shaun Jardine

From April 2008, each County Court in England and Wales has had an in-house mediator, who will be encouraging parties to participate in the mediation process and not proceed to trial.  Whilst many credit controllers may be familiar with the legal process, mediation is something new.  This Webinar will aim to explain what participants should expect when the Courts are not involved in the debt recovery process.

Terms And Conditions In A Nutshell – Why you should have them and how you should use them
Date: 10th November 2010
Time:12.30pm
Speaker:  Kate Ollis & Brian Auld

All business should have Terms and Conditions of Trading, as failure to do so could mean that it is left to the Court to decide on what terms businesses have entered into contracts.  This Webinar will include:-

• Why have them?
• The principal clauses to use
• The clauses to avoid
• How to use T&C’s to your advantage
• How to win the battle of the forms

To participate you need an internet connection and a telephone. You will hear the speakers through the telephone and see interactive slides/graphics on your computer  as the speaker makes the presentation.