As evidenced in their annual report for 2010 released on February 25, the Lloyds Banking Group noted that businesses in the UK show signs of recovery, largely due to rescue efforts by their Business Support Unit (BSU). Even though the total amount of impaired loans grew to £64.6bn, impaired business loans fell slightly from 2009 to £34.5bn of which £15.5 were real estate corporate loans.
In an effort to rescue many of these corporate ventures, Lloyds has turned over these loans to the management of their BSU that has helped a good number of UK companies to avoid business bankruptcy. Even though they are dealing with new impaired assets within the corporate real estate portfolio, some of those impaired loans have been offset by having sold previously impaired assets and by writing off other irrecoverable assets.
Lloyds further stated that their group will continue to “invest heavily in expert resource” which will enable them to continue helping their business customers to restructure in order to be sustainable with the hopes of protecting employment wherever possible.
The thrust of rescue efforts in the UK is focused on avoiding insolvency through rescue efforts which is why this particular report released by Lloyds is so important. Although the change from 2009 is small, it is movement in the right direction.
Considering that impaired corporate loans in 2009 totalled £9.36bn, the £6.64bn in 2010 impaired corporate loans was a major improvement. However, it is noted in the report that a good deal of the present impaired commercial loans is the result of the economic turmoil in Ireland.
The group has also reduced its reliance on liquidity support from governmental and other financial institutions and furthermore, they receive no such support from either the European Central Bank or the United States Federal Reserve. As a result, their efforts on their own behalf are quite extraordinary.
Recently the Insolvency Service forced business liquidation on Travel Market and Decode Car Hire which were running websites that purported to have a worldwide search engine to get the best deals on car hires.
Mass complaints from consumers led to an investigation which resulted in both companies being bankrupted on the grounds of public interest. Complaints lodged against the company spoke of consumers paying upfront for car hire only to be awarded a voucher that was unredeemable.
When consumers presented the vouchers to the individual car hire lots they were told that no payment had been made by either Decode or Travel Market. After trying unsuccessfully to obtain a refund, consumer complaints began flooding in.
To compound the matter even further, both companies no longer operated at the registered addresses and attempts to contact them were likewise unsuccessful. After an investigation, it was found that the business was in fact being run from Latvia.
The Insolvency Service’s company investigations supervisor, Chris Mayhew, stated that both businesses were actually operated as fronts for questionable offshore business activities. This is one of the leading reasons for forced business liquidation in the UK.
Any company that tries to defraud the public will quickly learn how serious the UK is in winding up businesses in the public’s best interest. Whilst there may be no defense against wrongful activities, there could be times when false accusations and fraudulent claims can lead to being placed under scrutiny by the Insolvency Service.
If any business believes that it has been unjustly accused, rather than face forced liquidation it would be wise to seek counsel from an insolvency solicitor. However, if a business is out to deceive the public then penalties in the UK are strict leading up to bankruptcy and perhaps even criminal prosecution.
Still troubled financially, JJB Sports has a second CVA proposed as it looks to restructure. The same team that structured the first CVA approved in April of 2009, KPMG, has drafted this second CVA. Details were released last week as to the nature of restructuring proposed in the Company Voluntary Arrangement.
It is the intent to close 45 stores over the next 12 months that are underperforming with an option written into the CVA to close an additional 50 stores, if needed, during the next two year period. This proposal will be presented to shareholders and unsecured creditors at a meeting yet to be disclosed.
JJB released a statement that they have kept the lines of communication open with major landlords which represent approximately 40% of annual rental payments. The dialogue with landlords involves transparency as to the present shape and future prospect of the company’s property portfolio.
The CVA proposal provides for liabilities not only to unsecured creditors but to the landlords in question as well. The proposal aims at paying in full all outstanding debts through the restructuring process which is contingent upon a £31.5 million realisation of equity capital and continued working provisions with financial institutions.
However, news that rival JD Sports had made a takeover bid has not been denied and JD has openly stated that they are in ‘early stage discussions’ with the board at JJB about presenting an offer. It is unclear whether JJB will dialogue with their major competitor regarding the takeover or if they will continue to pursue this second CVA. In either case, it is clear that the troubled sports conglomerate needs to take immediate measures to avoid bankruptcy.
In order to avoid bankruptcy during the recent troubles which beset the UK business world, many companies opted to utilise the services of an Insolvency Practitioner. If it appeared that business would rebound once the economy bounced back, every effort was made to rescue the company from going under.
Sometimes informal arrangements could be made, but as many of a business’ creditors were figuratively in the same boat and in jeopardy of going under as well, more formal arrangements were required. If a company had a viable business but just going through a rough patch, perhaps due to uncollected revenue, an IP probably recommended a CVA, Company Voluntary Arrangement.
One of the benefits of a CVA is that the director/s actually gets to stay in control of the company as opposed to a receiver being appointed by the courts. The director knows his or her market and is thus able to work with both the IP and creditors to keep the company afloat during economic hardships. A business model might need to be revamped to realise a profit, but the company will not be turned over to a trustee as would be the case during bankruptcy.
Since 1986, the UK government has made every effort to help rescue companies in temporary need of assistance. One of the changes instituted was the CVA. As evidenced by the sluggish economy in the UK as well as around the world, altogether too many companies were in the same state. CVAs were reported to have been the saving grace of a good number of UK companies during those recent years.
Many businesses throughout the UK remained solvent because of a Company Voluntary Arrangement. If your company is in danger of becoming insolvent, an Insolvency Practitioner should be consulted as soon as possible. All parties involved will be bound by strict regulations as stipulated by R3. Your IP will take you through it every step of the way from making arrangements to having them filed with the court.
According to more than 500 financial directors and business owners surveyed by R3 during the last quarter of 2010, there is still a good deal of concern about the economy in the UK. Many businesses are experiencing problems with cash flow amidst the loss of regular customers as compared to the same quarter of the previous year. As reported in the ‘Business Distress Index,’ there are a number of key signs of economic distress among UK businesses.
One of the greatest concerns is the fact that almost one-third of their customers had ceased making efforts to work with them which is up almost 6pc from the corresponding three month period. Added to that, 5pc reported a decrease in profits, from 49pc up to 54pc, and a 2pc spike in companies finding it difficult to pay invoices. More partnerships, companies and sole traders are seeking professional business recovery advice in order to avoid bankruptcy.
Steven Law, president of R3, is quoted by the Telegraph as saying that the difficulties may simply be the result of an increase in overhead and other business expenditures rather than as a result in decreased demands for their products and services. Unfortunately, the Telegraph also reports that there is tension building between businesses and their banks and financial institutions.
On the bright side, a significant number of businesses were able to withstand insolvency because of those very financial professionals they set up a business recovery plan with. Although UK businesses are still showing signs of distress, fewer are actually forced into bankruptcy. With little more than 6 weeks left in this quarter, it is hoped that the numbers will be just as encouraging on the next report released from R3 in light of staying solvent amidst financial concerns.