Insolvency firm goes bust

This is quite a story. P&A were a particularly high profile practitioner given their involvement with various football clubs but also for the fact that their premises were raiding earlier this year following allegations of overcharged fees

Not a pretty picture but there may be two points to consider here. Firstly is the insolvency industry really struggling badly and is this the first of many? Quite possible given that actual business failures are declining

Secondly is this an increasing trend as government bodies are flexing their muscles and associated aggrieved parties are displaying the confidence to take action? To quote

But it hit trouble last year when the Department for Business, Innovation and Skills raided its premises on Queen Street, twice, and launched a criminal investigation.

In December Grant Thornton launched a £1.2m legal action over alleged unjustified fees after a Nottingham timber merchant went bust. The case has not yet gone to court.

Pre pack administration. New pressure on insolvency practitioners

From the 1st November the following guidelines for IPs will be implemented. This will be monitored through a structure which I will come to on a later post but the key question for me is what penalties will be in place if these structures are not adhered to? It could also be argued there is an element of “how long is a piece of string” about a number of the points

But let’s look at the positive side and acknowledge that this is welcome and overdue progress. Most credit managers will have experienced an unpleasant experience with clients that have taken the pre pack route and certainly the behaviour of some in the insolvency industry has often been awful. In my experience I would cite one of the very largest and supposedly reputable accountancy firms under that banner

They must keep records of the reasoning behind the pre-pack sale and also all other alternatives considered

Any valuations of sale assets should be conducted by appropriate independent valuers and/or advisors with adequate professional indemnity insurance. If the administrator relies on another type of valuation, he has to disclose this together with the reason and why he was satisfied with the valuation

A requirement to market the business/asses is emphasised, to ensure that consideration is maximized for the benefit of the company’s creditors. Marketing is a key factor in reassuring creditors and the SIP states that in marketing the IP should:
“broadcast” (market as widely as possible)
be capable of “justifying the marketing strategy”
show “independence”
“publicise rather than publish” (market for an appropriate length of time), and
use “connectivity” (use online communications)

Credit ratings across europe

Ever been interested in the credit ratings for each of the european states? If so, here is a graphic illustration from each of the three major agencies

The end of steel

Redcar’s steel mill is to finally shut down with the receiver seemingly certain that a buyer cannot be found. The news is not a surprise but has brought up some echos of the eighties, with the recent changes in the Labour party, which does appear to nostalgically hark back to the battles of that era.

The comments from local MP’s are predicable enough and given their constituency, not surprising but are they relevant? Should we be listening?

References to “industrial heritage” are a fairly significant indicator of the mindset. The fact of the matter is that we are back to the old argument of whether industries should be subsidised and if so, which.

It can in certain instances be somewhat short sighted to let a struggling major manufacturer fail and perhaps the most famous example was the rescue of Rolls Royce in the seventies which at the time was seen to be contrary to the governments policy. The key factor there was that RR were developing an aero engine which went on to be highly successful

Steel doesn’t fall into that bracket. Keeping industries alive for reasons of “heritage” and the supposed community is delaying the inevitable and sets a precedent that any government would find it difficult to manage

Tax avoiding corporations

A new book is due to be published on the very topical issue of Corporate tax evasion. I suspect that we will be hearing quite a lot from the author Gabriel Zucman over coming weeks and here is a primer in a piece in yesterday’s Observer

It is understandable why this creates so much consternation. Seeing Starbucks and Amazon paying virtually no tax on profits when they are such a clear retail presence is galling. I also believe there is a significant aspect to this which I will come to later but for the moment, perhaps we should look at the other side of the coin and perhaps pick up on a few of Zucman’s arguments?

Firstly it has often been stated that individuals pay tax , corporations do not. I think that makes for a good starting point.

Zucman claims in his piece that taxes avoided by corporations have to be compensated by higher taxes for the “rest of us”. On the face of it that is unarguable but the fact is that ultimately we all pay the corporation tax. Imposition of high taxes across the board will lead to higher prices.

He further goes on to state, in a rather confused way, that this creates inequality. Im not quite sure what he is suggesting here but the idea that corporations are remote cash hoarding behemoths is frankly wrong. If they are listed, then they are owned by all manner of institutions, most of which are managing the savings and pensions of the average man in the street.

But the inequality is not between individuals. To my mind one of  the biggest issues is that Amazon can easily undercut smaller retailers who do not have the recourse to expensive tax accountants to minimise their liabilities. On the high street you can equate this to Starbucks and the local artisan coffee shop. A less than level playing field that  further exacerbates the trend towards our overly homogenised high streets

So what is his solution?

He advocates a global tax assessment with the revenues being divided between states depending on the proportion of sales. Easy? On the face of it yes but do we really believe that every state across every continent is going to agree to this, because unless it is bought into globally, then havens will remain.

At the present time there is not even a standard tax rate across the EU and disgracefully bailed out Ireland and Luxembourg actually act as effective havens.

HMV resurrection

Longer term readers of this blog will recall that as someone with experience of the music industry, I had a particular interest in the fortunes of HMV and to be perfectly frank, I thought that their prospects were very gloomy indeed

How wrong i was. Seemingly by getting the branding and presentation as well as some astute marketing, they appear to be making great strides. This particular quote really surprised me.

The stricken business was rescued by the little-known turnaround firm Hilco, which has also been involved with Habitat and Clinton Cards in the past. Its chairman Paul McGowan says the commonly held view that digital (music) was killing the physical “was never true”. “Only 30% [of music buyers] switched to digital – 70% of the market is still physical.” It’s only a “matter of time”, he adds, before HMV reclaims the top spot from Amazon, which banks 20% of UK music and DVD sales versus HMV’s 19%. Sales at HMV stores have increased nearly 14% in the past two months, including a 21% increase in sales of CDs and vinyl records.

Why commission is important

Across the invoice finance industry, commission is paid to brokers at a near identical rate by nearly all the lenders. There are slight differences between the rates paid by the online portals and single invoice providers compared to conventional facilities but it is not so significant to deter a truly professional broker from seeking the best arrangement for the client regardless. In other areas of commercial finance, rates do vary considerably but invoice finance is keen to be self regulating.

Some may question why commission should be paid at all and whether it is simply a cost for the borrower. This is clearly an argument I would comfortably counter with the fact that there are over 40 active lenders in the market and also that competition as well as keen advice will keep the bidding competitive

Commission is paid monthly or quarterly for the full length of the deal. This is a sensible arrangement because it incentivises the broker to ensure that the borrower is content. I have not lost a client to another lender

I believe it is an arrangement that benefits all sides. I have never had a client complain about my time being rewarded and frankly nor should they. Unfortunately one bank disagrees

Aside from Yorkshire bank, who are reviewing their policy and are small players in the market, only HSBC refuse to pay commission. As much as I respect HSBC,I find this perverse. Their view is that the broker should charge a fee to the client directly

Simply put this is never going to work. It is frustrating because HSBC do have their place in the market and some particular strengths but whilst it would be possible to obtain a fee from a client at the outset. charging them a commission rate for the length of the deal is not going to be straightforward at all. Frankly, unlike a lender, the borrower has no real incentive to continue to pay

And it is the ongoing incentive on all sides which brings about the best solution for all parties