Archive

Archive for January, 2012

Pre pack overhaul dropped. Right or wrong?

As many of you will now know, the proposed three day “consultation period” with creditors before the commencement of a pre pack administration has been dropped by the government

This has kicked off a lot of anger from creditors and has been criticised by Philip King of the ICM and also supported by Frances Coulson of R3, the insolvency practitioners body

They both read this blog (I am pleased to say) so naturally enough I will sit on the fence

Well almost. I can certainly see the point of view that actioning a pre pack without delay will help a business to continue trading. Seamless transition does make sense but alternatively, does a three day delay make that much difference? And one thing I am unsure about is how much real power the unsecured creditors would have during thsi short window anyway?

Maybe someone could answer.

And it has to be said that it is particularly galling for unsecured creditors to be left high and dry with no input whatsoever. As a credit manager who has witnessed too many business failures at close quarters, I would definitely not claim that I always liked what I saw. Indeed one receivership handled by a very high profile top firm was…. I will stop there

On the other hand are creditors too eager to play innocent? I have said so before and will say so again but a high proportion of business failures are certainly predictable from available information. Without blowing my own trumpet too hard, I have analysed thousands of accounts and trading circumstances and will confidently say that only about one in ten collapses are a complete surprise. The majority are certainly foreseeable not just from accounts and the sector climate but also quite simply from the business news. I wonder how many creditors ignored the available information?

My biggest frustration was misrepresented balance sheets. I clearly recall a collapsed company with fixed assets on the balance sheet of £2m which had a “realisable value” of £15k. Now with a little bit of digging, that could have been foreseen (I learnt a lesson) but who signed this rubbish off?

And were they ever held to account? Maybe the recent anger is being misplaced? but taht would depend on whether the creditors are managing their credit in the first place. Not something I would always bet on

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Petroplus failure

http://www.bbc.co.uk/news/business-16696749

How can an oil refinery go bust? When I first started in credit management, the oil industry was seen as gold plated. I am curious to know the background to this and will be reporting back…

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Article for my friends at Orchard Growth

On overseas credit control
http://www.orchardgrowth.com/index.php

enjoy!

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A shocking credit rating

A client i worked for was being pressed particularly hard for payment by a fairly major supplier. The amounts involved were not significant and my client felt that there had been a slight change in approach from the supplier, which led him to checking their credit rating

The rating had dropped from 62 to 34 (how they quantify this i dont know) and naturally he assumed they were in trouble

So I had a look

The client was very long established and produced fairly straightforward accounts. Fixed assets barely moved from year to year and it was a self contained business in a avery steady sector. There was absolutely no adverse legal or filing information and it would be surprising if there been

Why? Because the ratio of their current assets (virtually all debtors and cash) to current liabilities stood at a very healthy 3.62. There was also no long term debt

The troubling issue was that the ratio had actually increased from 3.46 the year before. Why is that troubling?

Because there are cheap and nasty credit agencies out there who cannot even properly evaluate a simple straightforward business and cause immense damage by issuing clueless ratings

The supplier was not in trouble and, in my opinion, very unlikely to be so any time soon. And before anyone asks, this agency did not have any adverse information they were not disclosing. They do not dig that deep (few do)

Perhaps reassuring my client that the supplier is simply acting within their rights (we were overdue) and perhaps a little clumsily rather than being in difficulties, is not what they wanted to hear, but it was the truth

Credit assessment is vital and too important to be left to knee jerk thought free analysis

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Bond Partners disgrace

It almost beggars belief that an IP firm can go into administration. Naturally enough there is the ironic element (as with Vantis and Halliwells last year) but this would appear to be a serious case of, lets be polite here, severe mismanagement

Not only that, people i know well have taken a hit through this. Thats not amusing…

I sense this is a story which is going to run and run..

see here

and here

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A story about a B2B business failure…

See here

From G2link who regularly blog intelligently in B2B credit issues in the US

Briefly put, a bad debt was incurred for a substantial amount after a client kicked off a “new initiative”. The credit reports gave the go ahead and the authors conclusion is that these cannot always be relied upon

That is true in isolation but you cant form the bigger picture without them

The key lesson (and perhaps the author didn’t quite nail this) is what was the nature of the “new initiative” What drove it? Desperation or restlessness? How costly was it? And how high risk was the strategy?

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The year ahead…

Perhaps because this is the grimmest month of the year (although its a beautiful day at the top of the Tate Modern where I am typing this) its all a little too much to concentrate on gloomy news, but the news from Greece is looking bad (again).

http://www.bbc.co.uk/news/business-16553532

This is probably led to the credit agencies threats to downgrade various euro states (including France….no laughing at the back) simply because of their exposure to the Greek market. 

And whilst we in the UK may feel relatively relaxed about that, the difficulty is that a Greek euro exit will drive the markets to target Portugal and Ireland as the next victims

I call them victims reservedly. Its difficult to feel much sympathy for these states frankly but the derailing of the Irish recovery could be very difficult for the UK. Unlike Greece, the uk banks have considerable exposure there

I always tend towards optimism whilst others will be wallowing in gloom, but I do believe that 2012 is going to be a very significant year indeed. One way or another

Have a good one…

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