Over the last few weeks we have started to see an increase in the number of enquiries from Company Directors and Individuals seeking financial help and debt counselling as the result of COVID-19.
As a multi-discipline firm Orchard Financial Solutions Ltd is well placed to consider various financial solutions for clients experiencing financial hardship. Be it re-structuring or raising finances for businesses via Orchard Business Finance; reviewing residential mortgage via Orchard Mortgage Solutions; and finally looking at more formal insolvency options through Orchard Debt Solutions.
When dealing with a Company Director or Individual with financial problems we don’t immediately consider formal insolvency procedures as the first option. Liquidation or a CVA are not necessarily the best option for a company nor is Bankruptcy, an IVA or Debt Management Plan the best option for an individual. These solutions will only be considered when all others have been exhausted.
In the current climate lenders are working with borrowers and offering payment holidays, extended terms, zero interest on financial products to both domestic and commercial customers. Taking advantage of such offerings could be all that is needed to take pressure off cash flow. Even HMRC are treating creditors with compassion during these challenging times. HMRC are allowing those experiencing financial hardship to defer Income Tax and VAT payments. Time to Pay arrangements can be made for Corporation Tax and PAYE thus allowing payment to be deferred or agreed at an affordable monthly repayment.
It’s our job to support Company Directors and Individuals be it talking with HMRC on your behalf; just providing some simple self-help guidance on cash flow and money saving; or talking you through how to deal with lenders and creditors.
COVID-19 will no doubt change the way we work for many months, if not years to come. Companies will down-size and restructure, other will close completely, the impact on employees is going to be staggering. High Street retailers that had their own problems pre COVID-19 are really struggling with major brands disappearing, never to return. Other big employers across all sectors including manufacturing, transport, banking and travel are restructuring with significant job loses being announced recently by BA, Rolls Royce, HSBC and BP. These are large employers; SME’s across the UK will be competing similar restructuring especially when the furlough scheme ends. This is going to impact massively on Individuals who will unfortunately lose what were secure jobs through no fault of their own.
Another major issues for Company Directors is the uncertainty. Although we are seeing restrictions lifted, we just don’t know how this will impact on our businesses. For some, it will be like the first day of trading all over again. Others will pick-up where they left off and for some it’s going to be a rocky road. Despite best efforts to draw-up cash-flow forecast and profit and loss statements as part of the CBILS and BBBL application. Directors are informing us that they mis-calculated and are projecting that these funds will run out sooner that anticipated.
If you are feeling under pressure, stressed, don’t know where to turn we provide free support to Company Directors and Individuals experiencing financial pressure. We are committed to recommending solutions that are best for yourself not the ones that will financially benefit our company.
For a confidential chat phone today on 01257 543013.
We were approached by an established family run IT company that was looking for a business finance solution that would introduce funds into the company to support cash flow. The IT solution they offered businesses was market leading. But the uncertainty around Brexit had resulted in existing clients delaying their go-live dates for the new software. These delays had put company cash flow under considerable pressure as the software development costs had been considerable.
Following an initial review, it became apparent very quickly that the company was in a perilous financial position. Company assets were limited and didn’t hold much value and the directors personal assets were heavily leveraged, this ruled out the option of raising asset finance or re-mortgaging the directors residential property to raise finance. Unsecured business loans could not be considered as taking one out would cause a breach of contract with an existing lender. The option of Invoice Factoring was considered and explored with several lenders but was not feasible due to the companies invoicing process.
There were concerns that the company was trading insolvent and we asked an Insolvency Practitioner to complete an audit of the business and provide further advice. As a result of this audit it was confirmed that the company was trading insolvent and that the company would not realistically be able to repay creditors. The directors were accepting of this position and understood that they had certain duties and responsibilities. Additionally, they didn’t want to be accused of wrongful trading and held personally liable for the repayment of certain company debts.
The directors took the decision to appoint an Insolvency Practitioner with the view to restructuring the company. Despite having a healthy order book and working with blue chip and FTSE 250 companies. It was established very early in the process that a Company Voluntary Arrangement would not be viable as cash flow wouldn’t support monthly payments and lenders were not willing to support this insolvency process. This resulted in the Insolvency Practitioner taking on the role of Administrator and entering the company into an Administration process.
Upon formal appointment the Administrator commenced marketing the company to potential buyers. Due to the complex nature of the business, mainly software licensing agreements and an Inter Company complication it took four weeks, to finalise an agreement with a buyer.
The buyer introduced new funding into the company and removed the existing directors. The removal of the existing directors was agreed prior to the purchase and was amicable. The majority of staff were retained and relationships with clients reinforced as the result of the financial stability.
Often referred to as an IP. An Insolvency Practitioner is a professional person who is licensed to act on behalf of individuals and/or companies that are suffering financial distress or are facing insolvency. Typically, an individual or company director will approach an IP for their help in dealing with their personal or company financial affairs.
There are occasions when a company is solvent and the directors wish to liquidate by way of a Members Voluntary Liquidation, this is process is also conducted by an IP.
An insolvency practitioner acts in the role of a liquidator and this is one of a variety of roles that an IP will undertake when dealing with companies…
Liquidator – The role of the IP is to act for both insolvent and solvent companies and to realise company assets and distribute correctly to creditors. The distribution of assets depends on the type of liquidation. When it’s a Creditors Voluntary Liquidation which is abbreviated as a CVL. The creditors are normally suppliers, lenders, banks, HMRC. In the case of a Members Voluntary Liquidation or MVL it is usually the directors and shareholders who receive proceeds from the liquidation.
Administrator – If a company is failing financially or insolvent an IP will be appointed as the administrator of the company. The aim when appointing an insolvency practitioner as the administrator is to work towards an improved outcome for creditors. This could be via the sale of the company to suitable investors or a competitor or enabling an orderly shutdown of the company.
Nominee & Supervisor – This is only relevant if a company enters into a Company Voluntary Arrangement also known as a CVA. Or an individual enters into an Individual Voluntary Arrangement which is sometimes referred to as an IVA. During this process the insolvency practitioner will initially act as a ‘nominee’. When acting as the ‘nominee’ the insolvency practitioner will be responsible for pulling together and drafting a proposal for the CVA or IVA. Following the meeting of creditors the insolvency practitioner will become the ‘supervisor’ of the agreement. With responsibility for ensuring it is conducted properly and reporting back to creditors.
To become a licensed insolvency practitioner there is a requirement to pass the JIEB (Joint Insolvency Examination Board) set of examinations and also complete a set number of hours in practice. Not always but in many cases insolvency practitioners have previously worked in accountancy or law and hold qualifications gained whilst working in these sectors.
There are a number of professional bodies the ICAEW, ICAS and IPA all of whom observe the same standards of performance and professional conduct. Insolvency in the UK is regulated under the Insolvency Act 1986.
Despite Government support via grants, CBILS and Business Bounce Back Loans it’s still very difficult for Company Directors to project cash flow. Although some businesses are thriving at the moment many Company Directors are worried and unsure about the future of their business, especially in the building and construction sector.